Renegotiated govt-IPPs pacts: ECC, CCoE all set to accord final approval tomorrow

ISLAMABAD: The Economic Coordination Committee (ECC) and Cabinet Committee on Energy (CCoE) are all set to accord final approval to renegotiated pacts with 44 Independent Power Producers (IPPs) on Monday (tomorrow), official sources told Business Recorder.

"We presented the initialed agreements before the CCoE on February 4, 2021, which extended in principle approval, but the committee did not give final approval of the documents due to certain queries raised during the meeting," the sources added.

During discussion at the CCoE, questions were raised on the legal status of Arbitration Tribunal under Nepra for IPPs established under the Power Policy 2002, in place of international arbitration agreed in the original PPAs. The officials of Ministry of Law and Justice, who were present in the meeting, argued that though apparently there is no issue in the proposal, they will give legal opinion properly to avoid any legal hitch. The CCoE also asked Power Division to share details of savings of Rs 836 billion over the next 20 years as claimed by the negotiating team. Insiders claim that some members of the CCoE were of the view that approval of pacts should be delayed for sometime as they did not go through what has been claimed by the Power Division.

Another issue, sources said, raised during the CCoE meeting was that since it is a finance-related matter and Power Purchase Agreements (PPAs) between the GoP and IPPs, had been approved by the Economic Coordination Committee (ECC) of the Cabinet, the revised PPA should also be approved by the same forum.

"We have also convened a meeting of ECC on Monday evening to also approve the PPAs so that final document can be presented before the Federal Cabinet on Tuesday for ratification," the sources continued. The ECC will accord approval to pay Rs 399 billion as of November 30, 2020, to those IPPs which have initialed the document, in two tranches.

"The government wants to ensure that the new deals do not land in the National Accountability Bureau (NAB) as international investors are already shy from investing in Pakistan due to existing situation," said an insider.

A press release issued by the CCoE on February 4, 2021, Power Division, informed the committee that out of 47 MoUs the implementation committee has agreed the payment mechanism with 44 IPPs; Secretary Power Division briefed the Committee on the purposed mechanism. Certain members of the Committee sought more time to study the proposals in detail.

The sources said payments to be made in 2 Installments. The first installment of 40% will be of around Rs 180 billion, 1/3 is cash, 1/3 5-year Sukuk and 1/3 10-year PIBs and will be cleared next month. The second installment of 60% - Rs 270 billion, of which 1/3 will be cash, 1/3 10-year Sukuk and 1/3 10-year PIBs. The second installment will be made in August or September this year.

The sources said, though IPPs have some reservations on value of PIBs, the government has made it clear that taxation on holding PIBs/Sukuks cannot be done due to international restriction on tax exemptions. Alternatively, the government has changed 1/3 instrument into Sukuk so that the loss is minimized. However, for sales tax the matter of payment mechanism to be as per satisfaction of IPPs.

The sources maintained that PIB coupon rate will be the weighted average yield of T-Bill + 70 bps whereas Sukuk/PIB will be floating rate. State Bank of Pakistan (SBP) and Ministry of Finance (MoF) will sit together with leading banks to minimize any loss due to sale of PIBs. The receivables will be adjusted with par value of PIB/Sukuk.

Copyright Business Recorder, 2021