Law ministry''s advice for mediation with IPPs: power ministry facing awkward situation

The Ministry of Water and Power is in a difficult position after the Ministry of Law and Justice advised it to resort to expert mediation with IPPs, instead of legal proceeding regarding delay in payments by the power purchaser to Independent Power Producers (IPPs) under Power Policy 2002.
"To checkmate the advances of IPPs through Supreme Court and possible indictment of Water and Power Ministry for deduction/ with-holding of capacity payments to IPPs, the law ministry has rightly advised for choosing negotiation option,'' said a source privy to the matter.
The Law Ministry on query from the Ministry of Water and Power indicated that it is illegal to insist on fulfilment of agreement by one party means IPPs while the NTDC and GOP the other party continue to default, he added. According to the sources, NTDC deducted the capacity invoices of IPPs if they fail to generate power when the CPPA demands for generation because IPPs do not have money to purchase the fuel on advance payment basis from the fuel supplier because of default in payment of invoices by NTDC and default in payment against call of Sovereign Guarantee by GOP.
In fact, IPPs were available for generating the electricity but could not produce due to sole reason of NTDC and GOP default in paying the overdue payment which is contractual default on the part of NTDC and GOP, he mentioned. "The NTDC fails to understand that if we are not paid our dues we will not be able to produce power which is not due to any fault on our part but solely due to non payment by the purchaser," the representative from Advisory Council for IPPs commented.
He said that when the SC questioned the power ministry on this matter, the ministry sought help from the law ministry which in turn advised resorting of negotiations because of possible indictment of the water ministry on factual grounds. The law ministry''s document number F-1 (267)/11-law-II stated that NTDC/GoP is to purchase the electricity produced by the IPPs and make capacity payments to them. "NTDC is admittedly defaulting in making capacity payments," it stated.
It stated that after discussing some provisions of the PPA, the referring division has made a query and sought reply. The query was "whether delay in energy payments by the power purchaser shall entitle the IPPs to capacity payments in the event of their non-generation/non-supply of electricity".
On which the law ministry replied "attention of referring division is particularly invited to Article 3.1(b)(i)(ii) of PPA. The NTDC is admittedly not making payment or is making irregular payment. The referring division is advised to resort to expert mediation as indicated in paragraph number 2 line 2 of F.R (Ministry of Water and Power).
"The advice of Law and Justice Ministry is very clearly indicating that the position taken by Ministry of Water and Power is not supported by the power purchase agreement (PPA) and the laws of the land which govern the PPA. Therefore defending in the court will not be possible.
However, to save the Ministry of Water and Power from complete failure the Ministry of Law and Justice advised a way out of this situation through "expert mediation". Representative of IPPs said that the Supreme Court was the best forum in present circumstances to resolve this issue because recommendation by any expert is not binding on the parties hence the case will be further lingered and will cause the reduced generation (more suffering for industry and nation as a whole) and no further investment will come in this sector until this issue is resolved.
It is pertinent to mention that a group of eight IPPs moved SC against not receiving their outstanding overdue from the government despite invoking the sovereign guarantee.
Instead of clearing the dues, the respondents are illegally deducting their capacity invoices, which is against the contract, laws of Pakistan and judgements of superior courts.
The above actions of respondents are causing the reduced generation of electricity and due to this nation and common citizen are suffering and being deprived from their fundamental rights. The eight IPPs that filed the petition included Liberty Tech, Orient Power, Atlas Power, Nishat Power, Nishat Chunian, Saif Power, Halmore Power, and Sapphire Electric.