IPPs’ plea to govt: ‘Either resolve LC issues or declare force majeure’

ISLAMABAD: Independent Power Producers (IPPs) have urged the government to resolve their issues related to opening of Letters of Credit (LCs) for execution of foreign payments or declare force majeure under the Power Purchase Agreement (PPA), sources close to Chairman Nepra told Business Recorder.

This was put forth by Independent Power Producers Advisory Council (IPPAC) in a letter to different government functionaries including Chairman Nepra, Tauseef H. Farooqi.

The IPPAC, in its letter referred to its previous letter titled “SBP approval for opening of LCs” of February 23, 2023 in which the critical situation of IPPs was highlighted and warned the Power Division of the issues that would arise from SBP’s restrictions on payments for import of equipment in upcoming days.

Equipment import: IPPs seek amendment to SBP’s circular

Power Division was requested to take up immediate measures to resolve this matter with the SBP and avoid any unfortunate incident. Now the situation is worse than ever and is deteriorating with every passing day.

The maintenance of most power plants is already due but the IPPs are not able to perform it due to the unavailability of spare parts; whereas their OEM has already advised the IPPs not to operate their engines without performing the overhaul.

The IPPAC argued that IPPs may not be able to claim insurance on losses and breakdowns when the required maintenance is not being performed leaving them at significant risk.

The summer season is approaching and IPPs expect to get regular dispatch instructions from National Power Control Centre (NPCC) but complying with these instructions would be highly risky without performing due maintenance. Consequently, National Grid will have to suffer a power shortfall in the upcoming days, despite available installed capacity.

The Council further stated it may also cause clogging in the fuel supply chain eventually resulting in slowing down the flywheel of the country’s economy.

The IPPAC further stated that barriers to foreign remittances also impact on other non-operational aspects of IPPs. These include barriers to payment to vendors, like foreign insurers. These barriers impact functioning of the IPPs and can lead to IPPs being unable to fulfill their obligations under their respective IAs and PPAs.

In the Implementation Agreement entered between GoP and IPPs, GoP has committed to ensuring the timely availability of foreign exchange in the Implementation Agreement entered with the IPPs, therefore, IPPs once again request the Ministry to take immediate concrete steps to resolve the issue of non-opening of LCs and execution of foreign payments with SBP by amending the circular otherwise the government should announce force majeure under the Power Purchase Agreement if its remittances related to imports are not allowed to IPPs.

M/s Atlas Power Limited (APL) warned the government that it would announce force majeure under the Power Purchase Agreement (PPA) if its remittances related to imports are not allowed. The company conveyed its cautionary message in a letter to Managing Director Private Power & Infrastructure Board, Shah Jahan Mirza.

M/s APL wrote a letter to Managing Director PPIB on February 1, 2023 in which the former explained its precarious position that is progressing due to restrictions placed on imports by the government/SBP.

According to the letter, the company, in a meeting with MD PPIB explained its challenge with respect to keeping the plant functional and sought the latter’s help in meeting obligations and responsibilities; however, things have only gone from bad to worse since then.

The power company raised the issue of non-payment by the banks to foreign suppliers against LCs duly approved by SBP. These pending payments to foreign suppliers pertain to consignments some of which were cleared as far back as October last year. Payment was to be made to supplier on receipt of shipping documents in the bank which were delivered promptly.

The power company claims that out of Euro 1.8 million, only Euro 8,921 was paid on March 21, 2023 after a lapse of almost five months, adding that if regular daily payments of this quantum are assumed, then this pending amount would take over 200 working days to be fully paid as unfortunately the bank is not committing to settle the full amount and instead is committing to only the two smaller amount invoices by the end of current financial year.

M/s APL further informed PPIB that its OEM has stopped dispatch of all its orders already placed and ready for delivery till full settlement of the amount of $ 1.8 million.

Copyright Business Recorder, 2023