Independent Power Producers (IPPs) have sought Prime Minister Shahid Khaqan Abbasi''s help in the resolution of persistent financial crises that surfaced after the government failed to fulfill its legal obligations. IPPs'' financial woes have been conveyed by the IPPs Advisory Council (IPPAC) in a letter to the Prime Minister who also holds the portfolio of Minister for Energy. The copies of the letter have also been sent to Federal Minister for Power Division Awais Ahmad Leghari, Secretary to Prime Minister and Secretary Power Division.
Recently, the London Court of International Arbitration (LCIA) issued final award in the arbitration between 9 IPPs and NTDC, directing the government to pay more than Rs 14 billion to nine IPPs who sought arbitration before this court once NTDC failed to implement the expert determination within 75 days from the date of expert award.
The arbitrator first issued a final partial award according to which expert award became final and binding due to the failure of NTDC to implement the expert award or move before the arbitration within stipulated time period of 75 days. In this final award arbitrator determined the specific amount which has to be paid to 9 IPPs as well as payment of interest @ of Kibor + 4.5%.
The nine companies in the case were: (i) Atlas Power Limited, (ii) Liberty Power Tech Limited, (iii) Nishat Chunian Power Limited, (iv) Nishat Power Limited, (v) The Hub Power Company Limited, (vi) Saif Power Limited (vii) Orient Power Company (Pvt.) Limited, (viii) Sapphire Electric Company Limited and (ix) Halmore Power Generation Company Limited. However, the Government of Pakistan has started using delaying tactics in the implementation of the award by approaching a local court.
Presently, IPPs are facing a serious financial crisis on account of large overdue receivables from NTDC/ CPPA. The verified and audited overdue amount of around Rs 195 billion, as of October 31, 2017, is outstanding and payable to the 20 members of IPPA and this amount is growing every month. There is also an additional Rs 130-150 billion due to other power generators.
An official quoted the IPPAC as saying that for the last several months, IPPs have been requesting the Ministry of Energy to eliminate or at least substantially reduce the overdue balance. Unfortunately, adequate financial resources are still not available to the Ministry to do so.
Earlier this year, the IPPs called GoP guarantees. However, upon payment of a small portion by the GoP and with the promise to clear the outstanding balance very soon, the calls were withdrawn in best national interest.
"While there is little or no progress on overdue payments, IPPs have not called the GoP guarantees again to provide space to GoP to make the appropriate financial arrangements," the official quoted IPPs as saying in the letter.
The IPPAC has also claimed that the IPPs wanted to give due time to the new leadership for managing the situation. Despite mounting receivables, IPPs have remained operational by continuing to borrow more and more from the banks and sponsors. However, many of the IPPs are now so cash-strapped that they cannot timely serve their respective financial obligations to their lenders, operators, fuel suppliers and other third parties.
As if this cash flow constraint was not enough, GoP increased GST on furnace oil from 17 per cent to 20 per cent from October 2015 whereas GST on electricity was kept at 17 per cent, which has resulted in a systematic and massive build up of sales tax refunds to IPPs, the letter added.
FBR has also retrospectively assessed GST on capacity payment of the IPPs bills, in violation of the tax code and established the practice to avoid payment of GST refunds which is being contested in various courts.
IPPAC maintains that if FBR''s position is upheld, it will simply result in an additional tax of Re 1 per unit on the electricity rate.
The official added that IPPAC has claimed that in addition to the overdue receivables, there is another Rs 130 billion plus due as GST refunds due to electricity generators, which FBR is counting as its own collection and using this cash of IPPs as its own float.
IPPs further argue that the final award of Rs 14 billion in international arbitration for the amount unduly withheld by NTDC in 2011-2013, has been issued in favour of IPPs (revalidating local arbitration award of 2015). Accrued interest on this amount is estimated at Rs 120 million each month until paid by NTDC/ GoP. The matter has been pending for over 6 years now and needs to be closed to avoid tarnishing the image of GoP in honouring its contractual commitments.
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