RLNG-fired power plants: Sell-off plan faces difficult situation

ISLAMABAD: The privatisation of Re-gasified Liquefied Natural Gas (RLNG)-fired power plants is reportedly in hot water due to IPPs current issues and inordinate delay in other prerequisites, sources close to Minister for Privatisation told Business Recorder.

Sharing details, sources said transaction structure for the privatisation of two RLNG power plants established by National Power Parks Management Company Limited (NPPMCL) was approved by the Cabinet Committee on Privatisation (CCoP) in its meeting held on September 18, 2019.

However, Expressions of Interest (EoIs) for the bidders were published after a decision of ECC about post-privatisation issues of minimum 66% guaranteed off-take by NPPMCL and alignment of Power Purchase Agreement (PPA) and Gas Supply Agreement (GAS) in November, 2019.

In response to advertisement, EoIs were received from 23 parties. Statement of Qualification (SoEs) were, however, submitted by the 12 pre-qualified bidders, who after their pre-qualification began buyer side due diligence exercise from February 07, 2020 through Virtual Data Room (VDR).

The sources said bidding process for privatisation of NPPMCL was initially planned in April, 2020 and subsequently in June, 2020 but site visits of potential bidders could not be arranged due to ongoing COVID-19 pandemic and travel advisory restrictions, causing postponement of the bidding plans. Meanwhile, the issues of Independent Power Producers (IPPs) were widely publicized in the media accounting for reluctance on the part of pre-qualified potential bidders who are still waiting for the outcome and clarity on sectoral issues.

Based on the feedback from the prequalified bidders, Financial Advisory Consortium (FAC) for privatisation of NPPMCL had highlighted that the sectoral issues needed to be resolved and clarified before the bidding process.

The impending issues are briefly discussed as follows: (i) complete clarity on the recent developments in the power sector, which have significant impacts on NPPMCL i.e. its existing tariff structure, the dollar-based return on investment from the project and minimum 66% Take or Pay mechanism. Consequential changes will have to be reflected in the project documents i.e. Implementation Agreement (IA), Power Purchase Agreement (PPA) & Gas Supply Agreement (GSA) by the respective entities. (ii) The overarching sectoral issues are equally critical for the multilateral financial institutions (such as IFC, ADB and AIIB) for financing the debt portion, which is 70% of the project cost, for this transaction. The Minister/Chairman for Privatisation along with senior officials of the Commission held a meeting with the heads of leading commercial banks at State Bank of Pakistan in Karachi on July 23; 2020 to facilitate the debt financing for the transaction. The local banks are also waiting for the outcome of ongoing reform process while some banks are reluctant to finance debt portion of the transaction due to low spread approved by NEPRA (KIBOR + 1.8%). Moreover, certain essential clarifications regarding debt -financing from NEPRA, asked by Privatisation Commission, in its letter of June 22, 2020 have not yet been fully clarified by the regulator as enquired / requested by the prequalified bidders, in spite of PC’s follow-up and; (iii) bidders are expecting NPPMCL to qualify for tax exemption, similar to other private sector IPPs operating under the 2015 Power Policy as they noted that NPPMCL on its privatisation after demerger, if required, will not avail tax exemption. On the request of Privatisation Commission on July 21, 2020, Power Division in this connection had initiated a summary for the ECC of the cabinet but no progress has been made for want of comments from Finance and Law Divisions.

The sources said, NPPMCL and SNGPL were presently engaged in international arbitration on the dispute in relation to encashment of Rs10.38 billion of NPPMCL by SNGPL from Standby Letter of Credit (SBLC) against Take-or-Pay (ToP) gas quantities under GSA. Both were GoP owned entities, therefore, it was proposed that in order to save cost on international arbitration either the Ministry of Energy may settle the issue of its entities at its own level or settle it through local arbitration. The Financial Advisory Services Agreement signed with M/s Credit Suisse expired on October 31, 2020 and its extension was presently under negotiation with the FAC.

According to sources, presently, transaction of NPPMCL is on hold and its further progressing dependent on the early decisions and clarity of the confronting issues.

The sources maintained that the CCoP has recently constituted a committee under the chairmanship of Adviser to the Prime Minister on Finance & Revenue comprising Minister for Privatisation, Adviser to the Prime Minister on Institutional Reforms & Austerity, Special Assistant to the Prime Minister on Power, Special Assistant to the Prime Minister on Petroleum, Secretary, Finance Division, Secretary, Power Division, Secretary, Petroleum Division and Secretary Privatisation to deliberate on issues related to privatisation of NPPMCL and submit viable recommendations to the CCoP for consideration. The committee may co-opt any department/official/expert, as and, if deemed necessary. Ministry for Privatisation will provide secretariat support to the committee.

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