Power ministry''s recommendations: ECC accused of extending financial favours to one IPP

The Economic Coordination Committee of the Cabinet is reported to have extended huge financial favour to an Independent Power Producer (IPP) on the recommendation of the Ministry of Water and Power.
Sources in PPIB told Business Recorder that M/s Davis Energen (Pvt) Ltd (DEPL), which is developing a 13-megawatt power project in Jhang district, entered into a Gas Supply Agreement (GSA) on October 19, 2006 with Sui Northern Gas Pipelines Limited (SNGPL) for supply of 2.5 mmcfd gas for nine years from November 2006 to November 2015.
However, the former Secretary Water and Power, Shahid Rafi who is also facing investigation in the RPP scam secured exceptional favour to the project from the ECC for reasons that are not clear.
Ministry of Water and Power, in its official justification claims that due to innovation of technology, amendment to the technical and financial parameters of the project and in pursuance to approval of the ECC on February 09, 2010, the Power Purchase Agreement (PPA) and Implementation Agreement (IA) with DEPL were amended.
DEPL achieved financial close on September 08, 2010 and at present all equipment/ engines have been installed and the plant is ready for reliability run test. PPIB has approved DEPL''s request for extension in Required Commercial Operations Date (RCOD) till March this year. DEPL requested SNGPL to amend the GSA in line with timelines of PPA, which was regretted by SNGPL on the pretext that GSA and PPA are independent agreements and financial obligations have already triggered under the executed GSA. Under the already executed GSA, and supplemented deeds, DEPL was required to start commissioning on or before March 01, 2010 (COD). It is condition precedent that GSA shall be effective from the date of signing of amendment No. 2 to the PPA which was signed on July, 5, 2010.
Ministry of Water and Power informed the ECC, in its last meeting that, in terms of already executed GSA, liabilities to the tune of Rs 224.181 million , on account of penalty etc have accrued up to April 30, 2012 being payable by DEPL.
DEPL took up the matter with Oil and Gas Regulatory Authority (Ogra) which responded that change in commissioning date falls in PPIB''s purview. The matter was also referred to Ogra by SNGPL for deciding in terms of dispute resolution mechanism. OGRA advised SNGPL and DEPL to proceed further in accordance with the GSA already executed between them.
However, the PPIB recommended considering the request of DEPL for changing the commissioning period start date and Commercial Operation Date of the GSA in order to bring it in line with RCOD in the PPA.
DEPL further requested that since gas has not been provided to the complex, in spite of PPIB having mandated the RCOD to be March 2012, the RCOD should be extended to match the date from when the plant is actually provided gas.
In view of the recommendations of the PPIB and the fact that SNGPL has been in gas shortfall situation during the period in question and was managing its gas load through curtailment in various sectors coupled with the fact that SNGPL has not suffered any financial loss on this account and gas has not been provided to the plant till date, Ministry of Petroleum and Natural Resources submitted the following proposals for consideration of the ECC: (i) The commissioning start date of the GSA may be changed as the date of the actual supply of gas and commissioning of the plant;(ii) the term of the GSA should be linked to the first off take of gas, and since gas consumption will commence in 2012, the agreement term should extend till 2021. However, gas supply after 2015 will purely be on as and when available basis and ;(iii) the RCOD may be extended to match the date from which gas was actually provided to the plant.
The Ministry of Water and Power, under whose domain this particular issue falls, supported the proposal made in the summary subject to the condition of a committed supply of gas till 2021, instead of 2015. This commitment is not possible because of the widening gas supply and demand gap.
The ECC considered the summary, dated September 26 this year, submitted by the Ministry of Petroleum and Natural Resources on "Mismatch in the Timelines of Power Purchase Agreement (PPA) and Gas Sales Agreement (GSA) - Change in required Commercial Operations date approved by the PPIB" and approved the proposals contained in the summary.