MONDAY JULY 04: Grant of seventh extension to IPP: official refuses to clear PPIB proposal

ISLAMABAD: The country's top bureaucracy has reportedly expressed reluctance to become part of 'wheeling and dealing' of incumbent ministers.
Official documents show that recently a senior official of Finance Ministry and Secretary Planning and Development Division, Sohail Ahmad, (new Secretary, Establishment) refused to clear a proposal of the Private Power Infrastructure Board (PPIB) regarding grant of seventh extension to an independent power producer (IPP), despite the fact that the Minister for Water and Power, Naveed Qamar, had okayed the proposal. "Board has decided to allow a final extension to the company under watertight arrangements. However, Secretary, Planning Commission, and a representative of Secretary Finance were of the opinion that no further extension should be allowed to the company, and asked for record of dissent note," documents said.
According to details, the Managing Director of the PPIB briefed the Board that the company, through its letter of March 15, 2011, had requested for extension in the financial close date, from April 30, 2011 to December 31, 2011, so that its proposed lender (ie, OPIC of USA) could complete its project appraisal.
Following decision was taken in the 87th meeting of the Board, held on April 14, 2011:
"(a) The Board decided that PPIB should meet the sponsor to assess whether demonstrable progress has been made to achieve Financial Close (FC).
(b) In case, no satisfactory progress has been achieved, the original decision of the Board, taken in the 86th Board meeting, shall be implemented.
(c) In case the company can demonstrate through documentary evidence that substantive progress has been made to achieve FC, the matter may be referred to the Board committee for making appropriate recommendation to the Chairman of PPIB."
The Board was further informed that PPIB had convened a meeting with the sponsors on April 19, 2011. The representative of the sponsors informed that as per OPIC's requirement, the Environmental and Social Impact Assessment (ESIA) study was expected to be updated by end of April 2011. After that it would have been uploaded for around 2 months on OPIC's website for comments, following which it would take approximately another one month for completion of the project appraisal by OPIC, before the case is presented for Board approval in September 2011 or December 2011.
Subsequent to OPIC Board approval, additional time would be required to raise the debt from international banks based on the OPIC's guarantee and it was hoped that OPIC would be able to achieve FC by March 2012.
MD argued that as sponsors could not demonstrate progress to achieve FC, PPIB, according to the decision of the board, issued notice of Performance Guarantee (PG) encashment on May 2, 2011. However, the concerned banks informed PPIB, through their letter on May 6, 2011, that the sponsors had obtained a stay order on May 6, 2011 from Civil Court, Lahore.
The board members deliberated the matter at length. Minister for Water and Power, who is also the chairman of the Board, inquired as to whether there would be any downside to allowing an 8th extension to the project. It was pointed out that although 7 extensions have already been given, no real progress has been achieved so far. Allowing a further extension is unlikely to result in any positive outcome. Further, this will also set an unhealthy precedent for other projects in the pipeline. It was also highlighted that the company is solely relying on OPIC for financing and there is no alternative financing available to it.
During discussion, the Board was informed that the company maintains that it has been diligently pursuing the development of the project and taken every possible step for an early realisation of the project, including but not limited to purchase of land for the project, signing of various project agreements, signing of EPC contract, initialling of O&M agreement, redoing the ESIA study as per the requirements of OPIC, obtaining tariff and generation licence from Nepra and gas pipeline operation licence from Ogra.
The company has also forwarded OPIC's letter of May 5, 2011, whereby OPIC encouraged PPIB to grant an extension in the LoS/ FC date of the project up to March 31, 2012 to provide time to OPIC for its due diligence and approval process. The company has also submitted an undertaking, whereby it has affirmed that if its request for extension in FC date up to March 31, 2012 is accepted, it would withdraw the court case and would not seek any further extension in FC date beyond March 31, 2012. The company has requested that extension be provided up to March 31, 2012, as this will greatly support and benefit it in its discussions with OPIC which are in final stage.
Sources accuse the Minister for Water and Power of accommodating private parties on the advice of Prime Minister's son Moosa Gilani. They maintain that the Minister argued that since low-Btu gas earmarked earlier for the project has already been diverted to the Guddu power plant for the time being, therefore, allowing a final extension to the project would not result in any additional burden/loss to the economy or power sector.
The Board approved the extension in FC date of Star Power Generation Limited till March 31, 2012 as the final extension, with the condition that no further extension shall be given under any circumstances and the sponsors shall provide an undertaking to cover the following: (i) in case FC is not achieved by March 31, 2012, the PG submitted by the sponsors shall be encashed by PPIB. Sponsors shall provide commitment that they will not initiate any legal proceeding in such circumstances; (ii) sponsors shall withdraw the court case against GoP/PPIB and reimburse the expenses incurred by PPIB; (iii) availability of low Btu gas from Mari gas field to the project shall be reduced equal to the number of years for which the gas will be used at Guddu until the project is commissioned; and (vi) the sponsors shall be solely responsible to resolve any issues with the gas supplier regarding delays, liquidity damages, etc.