Under revised contracts: Govt defaults on payment of Rs85 bn to eight IPPs

ISLAMABAD: The government here on Monday apparently defaulted on the payment of 40 percent of dues amounting to Rs85 billion to eight independent power plants, which include HUBCO, KAPCO and six IPPs installed under the 1994 policy. HUBCO and KAPCO were installed prior to the 1994 power policy.

"Monday (March 29, 2021) was the day when the government was to pay Rs85 billion to the said power plants under the revised power purchase agreements (PPAs). The independent experts are claiming that the revised contracts are no more there because of inability of the government to pay 40 percent of dues as first installment. Payment of 40 percent dues is the most important condition for making the revised deals with IPPs operational,” industrial sources told The News.

"The total dues of 47 IPPs stand at Rs403 billion, and under the revised agreements, the government will pay 40 percent of the dues as the first installment heralding that the new contracts with IPPs are now operational and the remaining amount will be paid in six months' time.”

But the Power Division decided not to pay the IPPs established under the 2002 power policy till the NAB completes the probe against the some unscrupulous IPPs, which are allegedly involved in making excess profits. The Power Division first sent to the ECC a summary asking for non-payment of dues to the IPPs set up under 2002 power policy till NAB completes its investigation against some IPPs. Under the latest scenario, the Power Division withdrew the summary. In the summary, the Power Division had also recommended for stalling the process to form local arbitration to resolve the issue of excess profit of Rs55 billion.

"And there was no issue to clearing the dues of power plants like HUBCO and KAPCO and IPPs set up under the 1994 power policy and the government was to pay Rs85 billion (40pc of dues) to them on March 29. However, the government failed to pay them on time.”

The country’s stock market also nosedived by 1,000 points because of soaring Covid-19 cases across the country, coupled with anticipation of stringent measures of the government in the wake of resumption of IMF program, but some experts say that the government's failure to pay 40 percent as the first installment to the said IPPs sent a negative signal to the players of stock exchange. The IPPs set up under the 1994 policy include Rousch, Fauji, PakGen Power, Lalpir Power, KEL and Saba Power.

However, spokesman of the Power Division, while referring to the clause 5 of revised agreement, said: "In the event of any default by the Power Purchaser under this Amendment, the company shall suspend giving tariff discount from the date of default; provided however, if such default in not cured within a period of seventy (70) days, the company shall have the right to terminate this Amendment by seven (7) days’ notice, with no rights and obligations of either party arising out of the termination of this Amendment. Termination of this Amendment shall not affect the accrued rights of the Parties. Clause-9 shall continue in force after termination and shall continue in effect and be binding upon the Parties." So it is not true that agreements with the said IPPs stand abolished. Under the agreement, the government still has 70 days period under which it will make sure payment of dues.

The spokesman also said that both Power and Finance Divisions need the NAB validation letter (after NAB had taken suo moto of the entire IPP renegotiation deal) plus the ECC approval of the summary moved a month ago to authorize payment notwithstanding the NAB inquiry.