MONDAY MARCH 19: Delay in capacity payments to IPPs: PPIB fails to induce ECC to make side pacts

ISLAMABAD: Private Power and Infrastructure Board (PPIB) has reportedly failed to convince the Economic Co-ordination Committee (ECC) of the Cabinet to make side agreements with the Independent Power Producers (IPPs) in case of delay in capacity payments, well informed sources told Business Recorder.
The sources said justification provided by the PPIB and its parent Ministry was not sufficient to get support from ECC members including Finance Minister Dr Abdul Hafeez Shaikh.
During the discussion in the ECC, it was stated that the recommendations of the Ministry of Water and Power needed detailed analysis. The ECC had constituted a committee comprising Minister for Water and Power Syed Naveed Qamar, Deputy Chairman Planning Commission Dr Nadeem ul-Haq, Finance Secretary Wajid Rana and Secretary Water and Power Imtiaz Kazi to carry out a detailed analysis of the matter and submit its recommendation to the ECC for consideration in its next meeting.
According to sources, 12 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 had been continuously facing delays in payments by National Transmission & Dispatch Company Limited (NTDC), they said. As a result of delays in payment, these IPPs were unable to meet their obligations to lenders, fuel suppliers, operations & maintenance (O&M) contractors, etc in time. Consequently, four Residual Fuel Oil (RFO) based IPPs had given notices of default to the NTDC in May 2011, pursuant to the relevant provisions of their respective Power Purchase Agreements (PPAs) and Implementation Agreements (IAs), they added.
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, they further said. The notices were withdrawn after a major portion of the overdue amounts were paid by the Power Purchaser (NTDC) in end June 2011. Nevertheless, the NTDC was still unable to pay these IPPs on regular monthly basis due to acute financial crunch it is currently facing. Consequently, five RFO-based IPPs, along with four gas-based IPPs, again served notices of default upon the NTDC in August 26 and September 7, 2011.
Faced with this situation, to avoid default by GoP and ensure continued supply of oil, the Ministry of Water and Power decided to devise settlement agreements with limited duration of one month, outside the scope of Power Purchase Agreements (PPAs) between the nine IPPs, NTDC and PPIB on September 27, 2011. As a result, notices of default under GoP guarantee were withdrawn.
The ECC of the Cabinet was further informed that under the PPAs, IPPs were being compensated for delayed payments through delayed payment interest (KIBOR + 4.5%). Besides, 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 arranging extra working capital needed to arrange fuel. Although the delayed payment interest, and enhancement of working capital should have helped the IPPs to make arrangement of additional fuel required to make their plants available for dispatch in case of non-payment by the NTDC, these measures have not fully 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 IPPs are agitating that they are facing acute financial loss in terms of loss of capacity payments due to delayed payments by the NTDC.
According to the PPIB, four gas and 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.