Energy deals 'standard' documents to be revised

In a major policy decision, the federal government has decided to replace the existing 'standardised security documents', including 'Power Purchase Agreement' (PPA) and 'Implementation Agreement' (IA) for the new thermal power projects, to re-balance the risk-reward relationship between the company and the GoP.
Sources in Private Power Infrastructure Board (PPIB) told Business Recorder that similar documents, prepared under power policy 1994, have become outdated because of significant changes in the sector and legal environment in the country.
"After creation of two regulatory bodies, Nepra and Ogra, in the energy sector and change in the rules on movement of foreign currency, deregulation of liquid fuel market and impending privatisation of PSO, SNGPL and SSGC there was dire need to revise PPAs and IAs," they said.
Under power policy 2002, standardised security documents are required for oil- and gas-based thermal power projects, which provide a legal and contractual framework for designing, engineering, construction, commissioning, operation and maintenance of the private sector power generation projects.
In drafting the documents, sources said, the PPIB actively consulted the committee headed by Secretary, Water and Power, Ashfaq Mahmood, comprising representatives from the Ministries of Law, Petroleum, Finance and Privatisation as well as Board of Investment, Planning Commission, Wapda, CBR, SBP, SECP and Nepra.
Sources said that to 'market test' these documents, preliminary negotiations were held with two companies, to whom Letters of Support (LoS) had been issued under power policy 2002.
"It was necessary to re-balance the risk-reward relationship between the company and the GoP, given the country's risk profile, reflecting the current international best practices and benefits of improved technology," sources said.
They said that the new documents have been designed to cover around 70 percent and 80 percent of the proposed power projects and would be modified during negotiations with the companies in order to meet the needs of a particular project.
Another purpose to re-draft the standardised security documents was to ensure balance between the need to obtain financing for private power projects and limit any undue risk exposure of the GoP and Wapda, sources added.
They said tat the government has been asked to authorise the board of directors of PPIB to incorporate any change, which they consider was necessary for a particular project.
The Economic Co-ordination Committee (ECC) of the Cabinet recently exempted the new independent power producers (IPPs) from corporate income tax on a proposal from the Ministry of Water and Power.
Sources further said that the standardised security documents have been prepared by an international firm of consultants on heavy fee, through funding from World Bank Public Sector Capacity Building Project (PSCBP). The new documents would be considered by the ECC in its meeting scheduled for Monday.