Tariff deal with IPPs in jeopardy: Power Division asks ECC to stop paying IPPs’ dues

ISLAMABAD: In an upsetting development, the Power Division has suggested to the Economic Coordination Committee (ECC) to stop implementation of revised deals of discounted tariff struck with IPPs under 2002 power policy unless NAB completes its investigations against some ‘unscrupulous’ power plants who made excess profits. The ECC is scheduled to meet on Friday (today).

The News published a story on February 18, 2021 with headline ‘NAB looking for ‘wrongdoings’ in altered deals with IPPs’. It questioned the rationale of local arbitration over excess profits of Rs55 billion. The move from NAB has made Power Division's top mandarins quite upset.

However, the top mandarins of the power sector and government negotiation team later met with NAB chairman on February 18. The NAB issued a press release saying that it floated the idea of negotiation in view of some of weaknesses in the IPPs agreements of previous governments. The NAB chairman in the same press release appreciated the efforts of negotiation teams and the process, which extracted Rs836 billion in concessions.

Despite this, the Power Division in its latest summary to the ECC has sought permission to stop payments of dues to IPPs and to also stop arbitration tribunal to resolve the excess profit issue. The Lahore NAB wrote to secretary Power Division on Feb 18, 2021, aspiring to spot any deviation from MoUs, Master Agreements and amended PPAs about revised contracts with IPPs. “In the MoUs signed on August 12, 2020, there is no mention of a local arbitration tribunal to resolve the excess profits. Rather, MoUs mention that NEPRA will decide the issue through due diligence.”

However, the summary of Power Division, whose copy is available with The News, has raised eyebrows of many, particularly the government negotiation team headed by Baber Yaqoob. They believe that if the ECC approves the recommendations of Power Division, then the process to materialise the dividends of Rs836 billion in the next 20 years under revised power purchase agreements would come to naught, giving wrong signals to foreign lenders and investors in power sector.

This scribe tried time and again to have version from top officers of Power Division including Special Assistant to Prime Minister on Power, but they did not respond. The official said that it was a quite shocking move initiated by the Power Division.

Adil Khattak, CEO of Attock Gen Ltd (AGL) and Attock Refinery Ltd, both owned by majority foreign shareholders while commenting on the development, said if the summary for ECC is approved, it will be detrimental to future investment in the power sector. On the question of alleged excess profits made by some IPPs, Khattak, while vehemently denying the allegation, said this issue shall be addressed by an independent judicial tribunal as already agreed.

The CEO of another IPP said that even if NEPRA reduces Return on Equity (RoE) to ensure discount in IPPs tariffs, the agreement will not be implemented unless the government pays 40 percent of dues of Rs403 billion first.

However, rest of the 60 percent will be cleared in six months. And the revised contracts would also be operational only with 13 IPPs after the arbitration tribunal gives its verdict.

The official privy to the expected development said that if the ECC scheduled on Friday approves the recommendations of Power Division, then the whole effort of getting Rs836 billion discount would be wasted and foreign lenders and BoDs of 30 IPPs who inked revised power purchase agreements (PPAs) will be stalled.

The government has already worked out the dues of 47 IPPs at Rs403 billion to be paid in two installments. And the government would pay Rs41.096 billion to 17 wind IPPs. The official claimed that 17 IPPs hesitating to sign the revised PPAs, will come to terms of the government when they are not paid their dues.