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The Private Power Infrastructure Board (PPIB) has been authorised to negotiate return of equity to the sponsors of power projects on its own but approval of the federal government is a must for material change in the approved standardised agreements, official sources told Business Recorder.
"PPIB should insist on Pakistani law at this stage and returning of equity application should also be negotiated and decided by the organisation, but no change will be acceptable without the approval of ECC," sources said.
The decision was taken by the Board that Power Purchase Agreement (PPA) between National Transmission and Dispatch Company (NTDC) and Orient Power has recently been finalised while only two issues are required to be resolved for finalisation of the Implementation Agreement (IA).
First, full payment of equity if GoP takes over the plant in case of default because as per the standardised IA the equity would be reduced on equal basis over the term of the agreement with a floor of 20 percent. Sponsors are of the view that 100 percent equity should be refunded in case the government takes over the facility.
Secondly, the governing law as per standardised security package is Pakistan law whereas the sponsors had informed that their lenders wanted English law. Sources said that the Board discussed that documents were presented to the ECC after negotiations with few sponsors and now these issues are being raised.
"These issues were not highlighted in the initial negotiations and PPIB is deliberating hard to finalise the agreements as close the ECC-approved agreements as possible," they said. However, it is not always possible to get the other party to agree on the approved position on all issues and some adjustments are required to create a win-win situation for both the parties, the sources continued.
The PPIB is of the view that it is not in a position to resort to the other option of "take or leave", as power is the dire need of the country. Also, unlike 1994 policy, the fuel and gas supply agreements were commercially negotiated between the IPP and the supplier and each agreement could therefore have some differences, which had to be reflected in the PPA and IA. Every time a document was revised the other side took the opportunity to reopen the issue, the sources further added.
Sources said that since then government had withdrawn guarantees for fuel/gas suppliers contrary to the policy and earlier practice the lenders wanted some additional protection.
The government had discussed different issues being faced by different lenders but PPIB has stayed with and insisted on local law as governing law. However, the ECC decided that the issue should be revisited, depending on the lenders and bankability issues. After detailed discussion, the Board instructed PPIB to stress on Pakistani law but negotiate return of equity with the sponsors according to its own policy.

Copyright Business Recorder, 2006

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