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December 5, 2020

IPPs irked at non-seriousness on part of Power Division

Top Story

December 5, 2020

ISLAMABAD: As many as 53 independent power producers (IPPs) that signed MoUs with the government providing estimated relief of Rs836 billion in their remaining period of PPAs, have got irritated on the non-seriousness on part of the Power Division in finalising payment mechanism for offloading dues of Rs462 billion and implementation of their recommendations mentioned in MoUs. The IPPs also conveyed to the government that they will not provide the relief of over Rs135 billion, which is due in the head of late payment surcharge saying waiving off the amount in head of LPS is not mentioned in the MOUs.

Top sources privy to the ongoing talks between the IPPs and the government confided to The News that the IPPs have told in clear terms unless and until the payment mechanism is finalized and progress is made on their recommendations enshrined in the MOUs, they will not sign the amended power purchase agreements (PPAs). Under the recommendations mentioned in the MoUs, there are some tax related issues of IPPs and some IPPs want to delink the tariff of power plants that run on bagasse from imported coal.

The IPPs argued saying if there is a delay in finalization of payment mechanism and on their recommendations’ implementation, they will not be able to sign the amended PPAs on time as some IPPs have foreign lenders and because of the forthcoming Christmas holidays, they will not be able to get the approval from them which are necessary to enable them to sign the amended PPAs. “And that is why IPPs get irritated over the non-seriousness on part of the Power Division,” sources while quoting the IPPs in the meetings told The News.

“This has put the government on a tight rope as the life of MoUs is for six months that will expire on February 12, 2021. Under the MoUs, the government is bound to offload the dues of Rs449 billion. Almost over two and a half months have elapsed since the signing of MoUs.

“Head of MOU implementation committee, Adviser to PM on Finance and Revenue Dr Hafeez Shaikh, does not want to let the life of MoUs expire and wants immediate finalization of payment mechanism and substantial progress on IPPs’ recommendations mentioned in MoUs, so that the government could reap the dividends of MoUs,” the sources said adding that Dr Hafeez Shaikh has also stated that whenever he gets the payment mechanism with 3-5 options, he will take no time to sign it.

Special Assistant to the PM on Power Tabish Gauhar admitted: “Yes, some delay has been done, as dealing with everyone is a messy process. However the government is on track to finalize dues payment mechanism on time as we are in talks with every IPP and different options to finalize the payment mechanism for offloading Rs462 billion dues are under discussion. Various financial instruments to offload dues of IPPs are being discussed and to this effect, Dr Hafeez Shaikh is also updated.”

He maintained that the principal decision to pay to IPPs is that one third amount of total dues is to be paid as upfront payment at the time of signing of amended PPAs and the remaining two installments will be paid after 12 months each. This is how the payment of total dues will be paid to IPPs in two years time. “Right now, we are in the process of finalising the financial instrument under which payment is to be made to IPPs.”

Gauhar said that the financial instrument such as TFC (Term Finance certificate) is also being discussed. The issuance of promissory notes to be issued by the central bank to IPPs is also under discussion; however, the committee on payment mechanism headed by him will soon finalize financial instruments to be adopted to pay the dues of IPPs.

Coming to the delay on implementation of IPPs' recommendations mentioned in MoUs, he argued that since the federal cabinet took time in approving the MoUs because CCEO consumed the time seeking the opinion of Law Division, so the Power Division did not move till the approval of MoUs by the federal cabinet. However, now after the federal cabinet’s approval, the Power Division has started working for implementation of IPPs’ recommendations and to this effect it has written a letter to the FBR, seeking resolution of tax matters of PPAs. Similarly, the Power Division has also asked NEPRA through a letter to de-link the tariff of bagasse-run IPPs from imported coal and examine as to how in the world, particularly in India, the power tariff of IPPs that run on bagasse is calculated. The IPPs that run on baggase want to delink its tariff from imported coal, saying they stand below in the economic dispatch order because of the existing tariff calculating mechanism, which is linked with imported coal.

The SAPM also spoke his mind when his attention was drawn towards the development under which the IPPs have refused to provide any relief in waiving off of the amount of over Rs135 billion in the head of late payment surcharge, saying: “Yes, IPPs want to implement MOUs and seeking relief in LPS amount from IPPs is a request not demand.” He explained that IPPs are needed to pay Rs50 billion to PSO and OGDCL and after deducting Rs50 billion, the remaining amount will be doled out to IPPs. However, Tabish agreed saying as per the MoUs, the government cannot force the IPPs for any relief in the head of LPS payments.