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August 26, 2020

Understanding reached: Govt to pay for power it takes from IPPs

Top Story

August 26, 2020

Understanding reached: Govt to pay for power it takes from IPPs

ISLAMABAD: The government reached an agreement with Independent Power Producers (IPPs) and Wind Power Projects (WPPs) on Tuesday that would lower electricity cost and reduce the crippling circular debt with monetary concessions expected to yield a relief of five trillion rupees over the next couple of decades.

Led by Chairman Federal Land Commission Babar Yaqoob Fateh Muhammed, the government negotiators secured the key policy change in the power projects agreement -- a shift from earlier policy of “take or pay” to “take and pay”.

The two sides agreed to reduction in the rate of return on equity, reduction of interest rate on late payment for two months, conduction of heat test to judge capacity of projects and take profit in Pakistani rupee instead of US dollars at a rate of 15 per cent. The rate of dollar has been fixed at Rs148 for the life of these projects, The News learnt reliably.

As per the presentation given to the power minister by the negotiators, the government would save a minimum of Rs675 billion in the next seven to ten years. A Power Ministry official who attended the briefing of the negotiation committee said IPP experts hold firm view that approximately Rs5,000 billion would be saved in the next 25 years if this agreement is applied to the government-owned RLNG and coal fired projects. Sharing details of a saving of at least Rs675 billion, the official told this correspondent that the government would save Rs225 billion under the Power Policy 1994, another Rs200 billion under the Power Policy 2002, and Rs250 billion would be saved on the payments to be made under the Power Policy 2006 in life of these projects.

He termed the negotiation a success that would plug the black hole that was eating hundreds of billion of rupees and affecting businesses and industrial activities.

Power Ministry sources said the report would be with the ministry by 31st August and ratified by the cabinet in its earliest meeting. After that the government would sign formal agreements with the IPPs.

As far as the recovery of overpayments to some units is concerned, Nepra has been asked to negotiate with the IPPs and ensure a decision is taken on merit and without any arm-twisting. The Memorandum of Understanding (MoU) further reads that local investors’ USD based returns have been converted to Pakistani currency at 15 per cent and foreign investors’ returns have been reduced from 15 per cent to 12 per cent but in US dollar. It has also been agreed that heat rate test would be conducted as soon as possible to ensure accurate reporting of efficiency. Up to 70 per cent sharing in fuel efficiencies and 50 per cent sharing in Operations & Maintenance Efficiency also form part of the MoU. On delayed payments from government side rate of interest has been reduced from 4.5 to 2 per cent. The government would also devise a mechanism for payment to IPPs of their receivables. After two months on not paid receivable interest rate would be 4.5 per cent.

In order to assess if a company has made any ‘excess profits’, the reconciled financials between the committee and the IPPs would be submitted to Nepra to take a decision and provide for a mechanism for recoveries where applicable.

Further details reveal that the parties have agreed that nothing contained in the MoU shall be deemed or construed as an admission of liability, wrongdoing or improper action on the part of ITPs. Furthermore, MoU or any of the terms of this MoU shall not be considered as an alteration or amendment to the power change agreement or implementation agreement.

Once the federal cabinet and the board of directors of ITP approve the terms of MoU, the committee and ITPs shall agree and document details and procedures of these understandings, along with IPPs, project specific issues, within 30 days.

After that the MOU will be submitted to the stakeholders for ratification which will be followed by legal documentation to amend the tariffs and relevant agreements.

Last clause of the MoU said the understanding was valid for six months from the date of issuance and shall stand terminated on signing of the detailed agreements.