PM Steps in to Save Power Firm From Default

ISLAMABAD: On the intervention by the Prime Minister Office, the power division has resolved a dispute over the signing of a formal power purchase agreement (PPA) to save Neelum-Jhelum Hydropower Company (NJHPC) from default.

The Rs510 billion power project attained 969MW generation capacity in August last year and has since been providing electricity to the national grid without any payment. The non-signing of the PPA between the Central Power Purchasing Agency (CPPA) and NJHPC had resulted in a circular debt build-up of about Rs75bn.

In recent meetings with various top functionaries, NJHPC chief executive officer Brig Mohammad Zareen had warned that non-payment of dues would have serious political, financial and reputation risks to the government. This was because the delayed payments would require the government to increase consumer tariff to clear its backlog of over Rs75bn and avoid exposing the guarantees of the government and Water and Power Development Authority (Wapda) to default.

A senior official told Dawn that the PM Office had intervened and asked the power division to resolve the matter at the earliest. Power division secretary Irfan Ali heard viewpoints of the CPPA and NJHPC. This was followed by a meeting of the CPPA board of directors, which approved the signing of the PPA between the two entities.

Neelum-Jhelum company and CPPA agree to sign accord this week

The official said the two sides had now agreed to sign the PPA this week subject to its vetting by legal experts. The NJHPC had earlier reported that Wapda, the government and the company would go into default if its energy payments did not begin within a month as the power sector was using its unaccounted units for showing reduction in line losses.

“If revenue from the CPPA does not commence by December 2019, NJHPC/Wapda/GoP shall go into default due to back-to-back guarantee, apart from NJHPC not meeting the routine maintenance expense,” the NJHPC CEO reported on Nov 27.

He also reported that the Chinese contractor had left the project when it attained 99.6 per cent completion and some minor works were outstanding after shelling by the Indian army on the dam’s site on July 30 and Oct 19-20 and 24 this year and was not willing to return. The NJHPC approached the foreign ministry, prompting it to take up the matter with Beijing and hopefully the contractor would soon resume the job as required under the warranties, he added.

According to the CEO, the company’s annual debt service liability amounted to Rs50bn and it was getting letters from the economic affairs division every month for servicing debt to external lenders. “I will not have the funds to even pay for the salaries after December,” he said, adding that Rs100bn raised from local banks was currently being utilised for debt servicing, payment of salaries and other expenses.

Brig Zareen said the National Electric Power Regulatory Authority (Nepra) had given the NJHPC an interim tariff at a rate of Rs5.9180 per kWh for one year that was notified on March 8, but the company had not so far been paid a single penny by the CPPA against more than six billion units (kWh) it had supplied to the national grid.

The NJHPC recently testified before a parliamentary committee that the CPPA was not signing the PPA that had been lying with it since July this year. Resultantly, it said, the NJHPC had not been paid for energy delivered to date. Nepra had also revised interim tariff to Rs9.1184 per unit at NJHPC’s request in August, but it was not being notified. The final tariff application is currently under process.

The NJHPC had supplied over 6bn units electricity to the power sector that had remained unaccounted for so far.

The NJHPC had told the Senate Standing Committee on Planning that the CPPA was hampering the signing of PPA and invoicing mechanism by taking a stand that the company’s tariff be clubbed with that of Wapda despite the fact that the NJHPC was an independent company registered with the Securities and Exchange Commission of Pakistan and the power regulator had approved its separate tariff.

According to Brig Zareen, clubbing the NJHPC tariff with that of Wapda was not only impractical but also involved serious legal and taxation ramifications as unlike Wapda, the company had some tax exemptions and there were legal issues relating to export of electricity from Azad Jammu and Kashmir. Separately, Wapda already had payables of over Rs200bn with the CPPA.

Because of these issues, payments of Rs1.10 per unit to AJK as water use charge were not being made, affecting their budget estimates. About Rs60bn as Neelum-Jhelum surcharge being charged to consumers has so far been collected and is being utilised by the company, but another Rs60bn on account of energy sold to the CPPA has remained unpaid.

The 969MW project had an approved cost of Rs506bn, but was completed at a cost of Rs420bn.

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