The privatisation process of Jamshoro Power Company (JPC) has hit snags as the prospective investors have turned down the draft of 3-year Power Purchase Agreement (PPA)--up to June, 30, 2009--saying that the agreement should be made on long-term basis.
Sources told Business Recorder that after the prospective investors rejected the draft PPA, the Financial Advisor has been asked to take up the matter with National Electric Power Regulatory Authority (Nepra) and National Transmission Dispatch Company (NTDC) to suggest necessary amendments in the draft to allow extension up to June 2012.
Another big challenge the Privatisation Commission is facing in the case of JPC is the lenders' consent and signing of the loan assumption agreements in respect of Wapda's foreign direct and re-lent loans. This is yet to be resolved.
"Lenders' consent and signing of loan assumption agreements, including subsidiary loan assumption and guarantee agreements, were long outstanding for over three years with no sign of finalisation in near future due to non-co-operation of the Economic Affairs Division (EAD)," sources said.
The EAD had obtained 'in principle consent' of major lenders, but the signing of the loan assumption agreements by the lenders is likely to take considerable time as the EAD has yet to forward the agreements to the concerned lenders for review and execution, sources added.
A spokesman of PC endorsed the portion of information with regard to absence of EAD officials from important meetings. However, he said that loans had been transferred to the JPC, but did not make it clear whether the agreements had been finalised or not.
If the spokesman's claim is correct, the question arises whether it would not be a violation of Cabinet decision of 1998 in which it was approved that in future all privatisation, foreign debt liability owned by the respective public sector units should continue to be the GoP's responsibility so that the government should get better price at the time of divestment.
According to sources, that any change in the capital structure of JPC might have an impact on the tariff for which a petition would be required from JPC or NTDC to Nepra.
In the event of a debt removal from JPC's balance sheet, any reduction in the cost of debt being a pass-through item would require an adjustment to the tariff, sources said, adding that normally Nepra takes three to six months for deciding such petitions. However, given the privatisation timetable, Nepra might consider the disposal of such petition in three months.
They further said that the equity structure of JPC (deposit for shares) is currently at Rs 8.12 billion while at the time of tariff determination in December 2003, the equity base was roughly Rs 6.49 billion. Hence, a petition by JPC to Nepra for revision of its tariff based on the 12.7 percent Rate of Equity (RoE) formula is due in any case.
It may be mentioned here that an inter-ministerial committee, working under the umbrella of Privatisation Commission, had recommended to the government that GoP may consider cancelling Wapda's foreign direct and relent loans transferred to JPC and treat them as equity. Sources said that the final recommendations would be submitted to the federal government for approval.
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