Govt-IPPs deal hamstrung by lack of ‘visible’ mode of payment

ISLAMABAD: Independent Power Producers (IPPs) and the Federal Government have reportedly not signed the much-awaited agreements due to the lack of a “visible” mode of payment, well-informed sources told Business Recorder. The government and IPPs signed a Memoranda of Understanding (MoUs) a couple of months ago with the commitment to convert these understandings into legal agreements.

The sources said the government wanted to give tradable instruments to the IPPs but the International Monetary Fund (IMF) has not given its consent leading to uncertainty in the Finance Ministry as to what other instrument to offer. On the other hand, IPPs are not ready to proceed ahead until payment of agreed amount is guaranteed in black and white.

“I remember the dialogue of film Heer Ranjha, in which legendary, actor Munawar Zareef says, but ‘what was expected has not happened but what was not expected at all has happened’. We are facing the same situation of film Heer Ranjha,” said one of the representatives of IPPs.

In reply to a question, the sources said, Finance Minister Dr. Hafeez Shaikh has invited the representatives of IPPs on Wednesday (tomorrow) to apprise them about the possible options of resolving the issue.

He is expected to give reasons for the delay in arrangement of funds for the IPPs, who are unwilling to sign the agreements until they have the payment instrument in hand.

Recently, the Federal Cabinet granted explicit approval to MoUs signed between four dozen Independent Power Producers (IPPs) and the Government of Pakistan (GoP) to be converted into legally binding agreements.

On November 26, 2020, the Cabinet Committee on Energy (CCoE) was informed that in a summary of Power Division titled “explicit approval for report by the Committee for negotiations with IPPs” as additional agenda item was received in the Cabinet Division after the deadline of seven days prior to the meeting, as stipulated in Rule 18(6) read with Rule 23(4) of the Rules of Business, 1973.

Therefore, Secretary, Power Division requested the Chairman, CCoE, for consideration of agenda as urgently required. The Chairman, CCOE allowed the request to be tabled in the summary; in consideration of proviso of the rules.

The forum was informed that the CCoE considered the summary of October 26, 2020, submitted by the Power Division and directed Power Division on October 29, 2020 to: (i) make specific recommendation for consideration of CCoE and ;(ii) refer the MoUs to Law and Justice Division for advice on the need for their approval by CCoE/ Cabinet.

In pursuance of directions, Law & Justice Division shared the following advice on November 19, 2020 “that in the MoU, between the Committee for Negotiations and IPPs, it was agreed that the terms of MoU are subject to approval of Nepra and the Federal Cabinet; as such approval of the Federal Cabinet is required.

The CCoE is a Committee, of the Federal cabinet, constituted under rule 17 (I) (c) of the Rules of Business, 1973, and is mandated to technically examine, recommend and take policy decisions in respect of energy sector. Therefore, the MoUs may be placed before the CCoE for consideration. In terms of Rules of Business, 1973, the decision of the CCoE shall be placed before the Federal Cabinet for ratification/approval.”

In view of the advice rendered by Law Division, Power Division requested the CCoE to grant explicit approval to the MoUs.

The Committee has shared Master Agreement with the IPPs established under the Power Generation Policy 2002.

The terms and conditions of the agreements to be signed with the GoP, NTDC and CPPA-G are the same as in the MoUs.

According to the draft Master Agreement, a copy of which is available with Business Recorder, the IPPs will file a tariff petition to give effect to and for the implementation of section 3, 4, 5, 6 and 8 of this agreement to the fullest extent possible and to ensure the determination of Nepra fully encapsulates the provisions referred “herein”.

The agreement further noted that the company shall convert their contracts to take and pay basis, without exclusivity when competitive trading arrangement is implemented and becomes fully operational, as per the terms defined in the licence of each company.

The power purchaser shall work towards providing access to the bilateral market, at the earliest and the GoP shall actively support the creation of competitive power market.

The company agrees to be bound by the decision or determination of Nepra for the mechanism for recoveries, where applicable pursuant to the reconciled numbers between the committee and the company to assess if the company has made any excess profit as filed before Nepra.

The power purchaser in ensuring its adherence to the contractual obligations has devised the repayment mechanism for outstanding receivables within an agreed time period.

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