Government, IPPs reach agreement

The Government of Pakistan (GoP) and Independent Power Producers (IPPs) have reportedly reached an agreement to resolve prolonged outstanding issues and litigation at different domestic and international fora, sources close to CEO CPPA-G told Business Recorder.

Sharing the background, the sources said that pursuant to the Prime Minister's directive for the resolution of issues with IPPs several meetings were held between the Power Division and the representatives of IPPs. The discussions have led to development of a commercial understanding document.

The sources said settlement agreements would be signed with the Altas Power, Attock Gen Ltd, Halmore Power, Naowal Energy, Liberty Power Tech, Nishat Chunian, Orient Power, Saif Power and Saphire Electric.

A document has been developed to find out an amicable solution to outstanding issues to avoid prolonged litigation as well as arbitration to curtail costs and burden on the national exchequer, in addition to adopting proceedings which shall promote a healthy and viable structure of the national power sector, sources revealed. The parties recognize the need to resolve any and all outstanding issues in an amicable manner.

The parties in recognition of the significance and the benefits to be derived have mutually agreed to dealing with issues in the following areas: (A) amicable resolution for capacity payments in:(i) disputes between parties arising out of Capacity Purchase Price (CPP) claims, after referral to the expert has been proceeded in LCIA; after award from LCIA, the case is before Lahore High Court (LHC) for enforcement. The parties have discussed the matter to arrive at an amicable resolution and agreed to settle the dispute such that the dispute outage period as per pre-agreed procedure, to be treated as Other Force Majeure Event (OFME); (ii) IPPs also agreed to forge, the amount of LCIA award, the pre-award interest, post award interest and costs awarded by LCIA in lieu of the agreed arrangement; (iii) IPPs claimed that during the disputed period, three components of CPP i.e. fixed O&M, insurance and cost of working capital were incurred. Therefore, these three components, not paid during the disputed period shall be paid to the IPPs at the rates/ tariff already approved by Nepra for the relevant component and period; (iv) parties also agreed to file joint application before the Lahore High Court stating that on account of amicable resolution, the enforcement proceedings between the parties are being withdrawn. Such joint application shall be filed after the execution of the settlement agreement and full payment of the three cost components to the IPPs; (v) the proposals specified shall be presented by power purchaser/ GoP/ PPIB before all the competent forums (ECC, Cabinet, Nepta etc. as the case may be ) for necessary approval(s). During pendency of the payment, all parties shall ensure that enforcement proceedings before the LHC are adjourned so that an amicable solution fructifies.

(B) Interest rate, FIFO principal and interest on interest: (i) currently, the PPAs provide for Delayed Payment Rate (DPR) to be Kibor plus 4.5 per cent per annum, compounded semi-annually and calculated for the actual number of days which the relevant amount remains un-paid on the basis of 365-days a year. For all invoices issued after the settlement agreement, the DPR under the PPA will be reduced to Kibor plus 2 per cent instead of 4.5 per cent for the first 60 days after the due date and thereafter Kibor plus 4.5 per cent without compounding; (ii) for all undisputed outstanding invoices excluding invoices for DRR issued before the settlement agreement, the DPR would be worked on the basis of simple interest instead of compounding, save to the extent that one-time semi-annual compounding shall be permissible on the disputed amount outstanding before execution of the settlement agreement against Energy Purchase Price (EPP), Capacity Purchase Price (CPP) and through invoices; (iii) parties agree that all payments against the undisputed invoices/ claims will be implemented on FIFO method as clearly defined in the PPAs on the basis of due dates for all undisputed invoices/ claims; (iv) all claims of interest on interest / (DPR on DPR) invoices prior to execution of the settlement agreement. Such period may be extended with mutual consent of the parties. The power purchaser will devise and present the mechanism for this payment to its Board; (v) 50 per cent of all the overdue invoices on the date of the settlement agreement of the signatory IPPs (which enter into the settlement agreement with GoP) power purchaser would be paid within three months of the execution of the settlement agreement. Such period may be extended with mutual consent of the parties. The power purchaser will devise and present the mechanism for this payment to its Board; (vi) all the understandings in the agreement are one package and should be settled only as a package. Any pick and choose will not be acceptable; and (vii) the entire agreement shall become effective when all necessary approvals are in place and upon execution of the settlement agreement. This entire arrangement shall remain effective for the remainder of the terms of the respective PPAs, as extended from time to time, unless parties fail to adhere to any of the arrangements, in which case the settlement agreement shall no longer remain valid and would terminate automatically. According to sources, the settlement agreement will be submitted to the Economic Coordination Committee (ECC) of the Cabinet and subsequently to the Cabinet for ratification once Attorney General for Pakistan clears the document.