TUESDAY MARCH 13: Banks not willing to lend: government to ink side accords with IPPs

ISLAMABAD: The government has decided to alter agreements with the Independent Power Producers (IPPs) by signing side agreements aimed at extending support to them as banks are not willing to lend additional working capital in the present scenario of circular debt and sectoral restrictions, sources close to Managing Director PPIB told Business Recorder.
Twelve IPPs, with a cumulative net capacity of 2,409 MW, pursuant to Policy for Power Generation Projects 2002 were commissioned from March 2009 to June 2011. However, these IPPs have been continuously facing delays in payments by National Transmission& Dispatch Company Limited (NTDC). As a result of delays in payment, these IPPs are unable to meet their obligations to lenders, fuel suppliers, operations & maintenance (O&M) contractors, etc, in time.
As a consequence, the sources said, four Residual Fuel Oil (RFO) based IPPs served notices of default to the NTDC in May 2011 (under intimation to PPIB pursuant to the relevant provisions of their respective Power Purchase Agreements (PPAs) and Implementation Agreements (IAs). Later, in June 2011, due to non-payment of their overdue amounts, these IPPs also served demand notices upon PPIB/GoP under the GoP guarantees. The notices were withdrawn after a major portion of the overdue amounts were paid by the NTDC in end June 2011. Nevertheless, NTDC was still unable to pay these IPPs on regular monthly basis due to acute financial crunch currently being faced by it. Consequently, five RFO based IPPs, along with four gas based IPPs, again served notices of default upon the NTDC on 26th August and 7th September 2011. Faced with this situation, to avoid default by GoP and ensure continued supply of oil, the Ministry of Water & Power decided to devise settlement agreements with limited duration of one month, outside the scope of PPAs between the nine IPPs, NTDC and PPIB on September 27, 2011. As a result, notices of default served by the IPPs on the NTDC and the GoP under the GoP guarantee were withdrawn.
As per the executed PPAs, the IPPs are being compensated for delayed payments through delayed payment interest (KIBOR + 4.5%). Furthermore, on the request of IPPs, PPIB has provided its no-objection for a significantly enhanced working capital limits for RFO based IPPs in order to facilitate them for arrangement of extra working capital needed to arrange fuel. Although the delayed payment interest and enhancement of working capital should have helped the IPPs for arrangement of additional fuel required to make their plants available for dispatch in case of non-payment by the NTDC , these measures have not solved the problem, as banks are not willing to lend additional working capital to the IPPs in the present scenario of circular debt and sectoral restrictions.
The sources said IPPs are agitating that they are facing acute financial loss in terms of loss of capacity payments as they are not able to make their plants available for dispatch due to non-availability of fuel, which is solely due to delayed payments by the NTDC. Four gas/HSD based IPPs have also pointed out that as gas availability from SNGPL is not certain beyond November 2011, these IPPs would operate on HSD in case of non-availability of gas. Therefore, keeping in view the price of HSD, gas based IPPs also need to have a mechanism similar to RFO based IPPs for streamlining the payment cycle.
Subsequently, in order to address concerns of RFO and gas/HSD based IPPs, a number of meetings were held amongst the stakeholders, in which PPIB, NTDC and representatives of all twelve commissioned IPPs, participated. Based on the meetings and the provisions of the settlement agreement, and in order to facilitate IPPs towards fulfilling their payment obligations to the lenders, fuel suppliers and O&M contractors, following recommendations were submitted for consideration to the government:
(i) In case of delayed/ non-payment by the NTDC, the IPPs will not suspend their operations due to non-availability of fuel until the quantity of fuel equivalent to 90 days (for RFO based IPPs) or 33 days (for gas / HSD based IPPs) full load operation of the plant, is exhausted; (ii) in case the payments to IPPs are delayed to such an extent that the threshold point as stated in (i) above is reached, the IPPs will be deemed available, subject to the condition that the plants are available for dispatch at their declared available capacities but are not able to dispatch due to non-availability of fuel, solely caused by non-payment by the power purchaser. Under such a condition, the IPPs will be eligible to receive capacity payments for such declared available capacity. In lieu, IPPs will neither issue notices for payment in the event of default to the Power Purchaser, due to delayed/non-payment of energy payments, nor call the GoP Guarantee for the same; provided however, that the IPPs right to issue default notices to NTDC under the PPA and make a call on the GoP guarantee for energy payments, shall be restored after the expiry of sixty days; (iii) policy guidelines may be issued by the ECC to Nepra for enhancement of working capital component of the capacity payment for the IPPs to cover (a) the fuel cost at full load as in (i) above and (b) adjustment of the working capital component of the capacity payment based on variation in the fuel price on monthly basis in addition to quarterly KIBOR indexation already provided in tariff determinations; (iv) subject to approval and implementation of these recommendations, IPPs will not be entitled for delayed payment interest on the delayed energy payments. However, delayed payment interest and all other remedies will be applicable to delays in capacity payments as per the PPA;(v) Nepra will be required to issue its determinations in relation to (iii) above within 60 days of the ECC decision;(vi) NTDC will pay the deemed capacity payments in the interim; and (vii) these recommendations will be applicable from October 16, 2011 to those IPPs which opt for this mechanism and sign a separate side agreement with the NTDC. Upon recommencement of regular payments due and payable by the power purchaser, the side agreement will stand superseded by the PPA. However, the deemed availability provisions in the side agreement will survive and be effective from time to time in case the payments to IPPs are delayed to such an extent that the threshold point is reached during such times.