For turning MoUs into amended PPAs: Govt, 47 IPPs set to embark upon crucial talks from tomorrow

ISLAMABAD: The crucial round of talks between the government and IPPs to turn the MoUs into amended Power Purchase Agreements (PPAs) will start from tomorrow (Tuesday) on Payment Mechanism of dues that has been finalised by top notches of the Power Division and finance ministry with the World Bank, a top official of the Power Division told The News. “As many as 47 IPPs installed plants under power policies 1994, 2002 and 2006 that signed MoUs on August 13, 2020 and over three-month period has elapsed and so far there is no progress to turn the MoUs into legal and formal agreements knowing the fact that the age of MoUs is only for six months. Until now, the federal cabinet has not yet approved the MoUs signed with IPPs as the Cabinet Committee on Energy has sent the MoUs to the Law Division for final say. “In case six months are elapsed, then IPPs will not be binding to enter into amended PPAs. Keeping in view the delay, the government and 47 IPPs will usher in two-day talks not only to finalize the payment mechanism of dues which the government owes IPPs but it would also get input from the IPPs on five master agreements that will also be signed by both sides prior to turning the MoUs into amended power purchase agreements (PPAs).”

The 47 MoUs, if get turned into amended PPAs, will yield the monetary benefit of Rs836 billion to the government in the next 10-12 years, but in return the IPPs want the payment of Rs392 billion dues from the government prior to formal signing of amended power purchase agreements (PPAs).

Under the MOUs signed, the official said, the government has managed to introduce with the consent of IPPs material changes in the existing PPAs as the main clause of the agreement of 15pc profit plus dollar offered to IPPs under the previous power policies has been changed to 17 percent rate of return with Pak Rupee indexation. And IPPs will be paid the profit as per value of dollar at Rs148. “However, the rate of return of foreign funded IPPs has been reduced from 15 percent to 12 percent with US dollar indexation.

“As per the MoUs, the agreements based on take or pay mode will be converted into those based on take and pay only when the competitive market system having multi-buyers of electricity being generated by IPPs is established and becomes operational. However, for oil fired power houses, any saving in fuel will be shared with the government also.” But all is possible, the official said, only when the MoUs are converted into formal legal amended agreements.

The IPPs, under the MoUs, had set the condition that they would only sign the amended agreements when their dues got cleared. The senior official said that to this effect, out of four templates, one has almost been finalized.

Under the mode of payment prepared by the government with the consultations of World Bank, one third payment of total dues will be offloaded to the IPPs at the time of signing of amended PPAs and the second installment will be paid after 12 months and the third one will be paid again after 12 months. The mode of payment will be guaranteed by the State Bank of Pakistan. The government wants to pay the dues in two years. However, the vibes coming from the IPPs show some concern on mode of payment as they are of the view that the State Bank of Pakistan cannot provide the guarantee.

When contacted, Special Assistant to Prime Minister on Power Tabish Gauhar confirmed that the government and IPPs that have signed the IPPs will discuss the payment mechanism as well as the five master agreements in two-day talks. He said the government wants to complete all processes to turn the MOUs into amended PPA somewhere in January 2021 as the time of MoUs is to expire on February 12. He said that every IPP will have to get the amended PPA approved by its board. He also disclosed that the government is also going to sign MoUs with six leftover IPPs set up under 1994, 2002 and 2006 power policies. He said that the government side will hold talks with them by end of the current week and ask them to sign the MoUs and if they do not agree, then the government will have the right to initiate forensic audit against them and if wrongdoings are identified, then they would have to face the music accordingly. He said that the government will initiate talks for MoUs with leftover IPPs that include TNB Liberty, UCH Power, Zephyr Power Wind, China Three Gorges, Laraib Energy, and Star Hydro Patrind.

Coming to Five Master Agreements of which the government has finalized the templates, the top official said that the IPPs will also be taken into confidence and, if needed, their inputs to further improve the templates.

The first template deals with IPPs set up under 1994 power policy, two templates are for IPPs established under the 2002 power policy (one template deals with power plants that run on gas and the other one deals with those power plants that run either on furnace oil or diesel). And two templates deal with master agreements for IPPs under the 2006 power policy, one for windmills and the second one for solar power plants.