The Economic Co-ordination Committee (ECC) of the Cabinet will set up Joint Expert Mediation (JEM) to resolve dispute between IPPs and SNGPL over Rs 736 million claims of IPPs. Official documents reveal that pursuant to Power Generation Projects Policy 2002 four gas based IPPs namely Saif, Sapphire, Orient and Halmore having a cumulative capacity of 842 MW have been set up and are in commercial operations.
An aggregate of 152 MMCFD, of pipeline quality gas through SNGPL system, was allocated to these projects by the ECC in 2004 on nine month firm basis. In accordance with the terms and conditions of the Gas Supply Agreements (GSA), the gas supplier is obligated to supply a minimum daily quantity of 38 MMCFD to each of the projects. The gas allocation has expired on 30th June 2011.
The projects, through the project agreements, have been provided with the option to operate on High Speed Diesel (HSO) (as an alternate fuel during as and when available gas period. The matter was considered by the ECC in its meeting held on 30th June 2011, and the ECC approved firm gas allocation of 76 MMCFD to the projects till 30th November 2011.
Earlier, on 28th February 2011, the gas supplier claimed force majeure event under the GSA owing to its inability to supply gas to the projects due to rupture of pipeline supplying gas from Zamzama gas field and terrorist activity at Maramzai Gas Field. The gas supplier modified its FME on 3rd March 2011 to the extent that each of the projects will be supplied reduced quantity of 31 MMCFD against minimum daily quantity of 38 MMCFD till resumption of normal supply from the Maramzai Gas Field.
The FME was finally lifted by the gas supplier on 11th May 2011 and full supply of gas was restored to each of the projects. Meanwhile, the projects claimed FME under the Implementation Agreements (IA) and Power Purchase Agreements (PPA) on account of gas supplier's FME. The GoP/PPIB and the NTDC (power purchaser) rejected such claims of FME in light of contractual provisions.
Given that the projects are financed on non-recourse basis with sole revenue emanating from the power purchaser, FME by the gas supplier was rejected by the projects. Nevertheless, due to this gas curtailment, the projects were unable to despatch their full output and capacity payments were reduced by the power purchaser commensurate with lower capacities made available by the projects, the option of alternate fuel was not exercised by the parties under the PPA.
The sponsors of the projects are agitating 'that the gas supplier, in breach of the GSA, has failed to supply contractually assured minimum daily quantity of gas whereas at the same time other industrial consumers were supplied gas in preference without any binding commitments and obligations. Furthermore; it is their opinion that positions taken by the gas supplier and power purchaser on the FME are inconsistent legally and unsustainable commercially. Keeping in view the "cost plus" model of tariff determination by Nepra and payments from power purchaser tied to declared available capacity under the PPA, the sponsors argue that any reduction in the capacity payments (due to non-availability of gas) will have material and adverse impact on debt servicing which may ultimately lead to default under the financing documents. In order to secure the financial and economic viability and integrity of the projects, especially during the early phases of commercial operations, the sponsors are claiming reimbursement of lost capacity payments to ensure continued and uninterrupted operations of the projects.
The reported loss to the projects on account of deduction in capacity payments by the Power Purchaser due to curtailment in gas supply by the Gas Supplier is to the tune of Rs 735.87 million collectively, with breakdown as follows:
Rupees 234.27 million of Orient, Rs 251.60 million of Sapphire and Rs 250 million of Saif. The aforementioned three (3) gas based lPPs have 'incurred significant financial losses due to their inability to despatch fully arising from non-availability of gas resulting in loss of capacity payments under the PPA. Other than the option of operation of the projects on "Alternate Fuel" that could have ensured full capacity payments which was however not exercised by the parties under PPA, there is no remedial mechanism available under the Project Agreements.
Water and Power Ministry has submitted the following recommendations are hereby for consideration of the ECC; (i) audited loss of capacity payments as substantiated and incurred by the IPPs on account of inadequate gas supplies by Gas Supplier be compensated by SNGPL; (ii) The issue of determination and payment of lost capacity incurred by the IPPs be resolved through "Joint Expert Mediation" between the gas supplier, power purchaser and IPPs.
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