ISLAMABAD: In a goodwill gesture, the top management of K. Electric has withdrawn its main conditions of Principle of Reciprocity and arbitration through London Court from its draft terms of reference (ToRs) to resolve once for all the decade old disputes over receivables and payables between the K.E and the government entities.
The shareholders of K. Electric from Kuwait, Dubai and Saudi Arabia have also given the nod to the top management to remove the clause of Principle of Reciprocity and agree to the local arbitration mainly on the demand of the government paving the way to resolve the historic dispute over receivables and payables, a senior official at Ministry of Energy confirmed to The News.
“Once the local arbitration resolves the long standing issue of K E’s receivables and payables, then the process to offload 66.40 percent stakes of M/s Abraaj in KE to Chinese electricity giant, Shanghai Electric Power pending since 2016 will be completed.” The official said that the government had suggested to the K. Electric in a meeting held on January 25 to first withdraw its conditions of Principle of Reciprocity and arbitration through London court and agree to local arbitration, then the issue of their receivables and payables will be resolved amicably. This was disclosed in a letter of K. Electric’s letter of Feb 1, 2021 to secretary Power Division Ali Raza Bhutta. It mentions that the K.E management has decided to update the draft ToRs in line with guidance of secretary power division and agreed to removal of ‘Principle of Reciprocity’ and agree to arbitration in Pakistan rather than in London. The officials said that the unresolved dispute had also resulted in delays in the sale of K-Electric to the Chinese electricity giant, Shanghai Electric Power pending since 2016.
The unpaid dues caused a major blow to the company’s financial profitability in 2020 pushing K. Electric back into losses after eight years of profits which was also a reason behind Karachi’s power outages. The utility’s receivables according to KE have swelled to nearly Rs280billion with just tariff differential claims at Rs 220 billion while assorted federal and provincial entities owing the the remaining amount. When contrasted with KE’s payables of which over Rs 170 billion has to be paid to NTDC and Rs 13.7 billion to SSGC (exclusive of the markup claimed on a monthly basis by the gas distributor), KE yet remains in a net receivable position.
According to insiders familiar with the proceedings, Ali Raza Bhutta, Secretary Power Division (MoE) can be credited with convincing KE to revisit its Terms of Reference (ToRs). According to Ministry sources, these two clauses were major hurdles in resolving this issue, while the federal government undertook real efforts to move towards solving this Gordian knot.
This concession from K-Electric is expected to accelerate the resolution, the benefits of which go beyond addressing the circular debt between these entities. K-Electric’s Gas Sale Agreement (GSA) with the Sui Southern Gas Company (SSGC) has been pending since it expired due to the gas utility’s reluctance to sign a fresh GSA without payment of all outstanding amounts including markup. The power utility continued to claim that the markup issue is sub-judice in the Sindh High Court and that the historical dues issue may be ring-fenced until resolved by the GoP with a fresh GSA signed to meet the future power requirements.
With KE’s 900 MW RLNG power plant upcoming, with a commissioning deadline of April 2021, there is great pressure on all parties, to ensure that the GSA issue is resolved on priority so that the power generation unit can commence operations backed by reliable supply of gas. If the GSA is delayed further, KE’s RLNG pipelines interconnection with the SSGC Bin Qasim Custody Transfer station will be constrained and power supply to Karachi may take a hit. K-Electric’s Power Purchase Agreement (PPA) with the NTDC and CPPA-G is similarly pending with close to 1400 MW incremental power depending on this long-term agreement. The ball is now, the official said, in the MOE and SSGC courts and their response is awaited. It is hoped that they respond with the same level of enthusiasm in supporting the growing energy needs of Karachi and allowing it to finally move towards a power surplus position.
