ISLAMABAD: The country's power sector experts have termed revision of Independent Power Producers (IPPs) agreements as a good move despite the fact that some 'sensitive' points were not touched by the negotiating committee and the grace marks were given to the IPPs.
Talking in Aaj News programme 'Paisa Bolta Hai' hosted by Ms Anjum Ibrahim, former managing director, Pakistan Electric Power Company (Pepco), Tahir Basharat Cheema said the report of Inquiry Committee headed by former chairman SECP Muhammad Ali pointed out mathematical or invoicing mistakes, wrongful interpretation of Power Purchase Agreements (PPAs) and wish list i.e. projects should be converted to take and pay from take or pay due to reduction in demand, elimination of indexation, reduction in interest and recovery of amount IPPs swallowed through over invoicing.
Another proposal was that indexation should not be in dollars, which has been done for local investors, however, for foreign investors indexation will be in dollars at Rs 148 per dollar on the basis of monthly invoices to be determined by Nepra which will be adjusted on the basis of PPAs that allow indexation on yearly basis.
However, confusion remains on fuel savings since the government has agreed on 70:30 ratio (70 percent CPP-A and 30 percent power producer).
The new committee neither considered the first point seriously nor took note of any mathematical or invoicing mistake.
Cheema stated that CPPA-G failed to perform its due role with respect to the PPAs. For instance, in PPA, dollar indexation is supposed to be done on annual basis. However, tariff determined by Nepra says that indexation will be done on monthly basis which clearly indicates a disparity. Principally, PPA, which is signed between the GoP and power company should be on the basis of indexation not on the tariff determined by Nepra, he added.
"CPPA-G should take up this issue with the government and regulator, seeking advice on this disparity," said Cheema.
According to the MoU, it was agreed between the parties that whatever is done should be considered as past transaction and in future Nepra will decide on monthly basis, he maintained, questioning as to who is responsible for invoicing mistakes?
The MoU discussed was for 2002 established IPPs while it has been decided to retire 1994 IPPs and agreement with respect to CPEC IPPs have also been reached with China though it would be announced during a high level Chinese visit to Pakistan.
The panel also discussed different clauses of the MoU signed between the government and IPPs and their consequential impact on the energy prices and circular debt.
The MoU states that the committee for negotiations had several rounds of discussions with IPPs established under Power Generation Policy 2002. Parties agreed to alter their existing contractual arrangements to the extent of, and strictly with respect to, the matters listed under the MoU.
The terms of the MoU are subject to the approval of National Electric Power Regulatory Authority (NEPRA), Federal Cabinet and IPPs' Board of Directors and other necessary corporate approvals.
The MoU has been signed in the larger national interest, voluntarily agreed to provide concessions considering the facts that a significant period has passed since its Commercial Operations Date (CoD).
For oil fired projects, any future savings in fuel would be shared on a sliding scale starting from 70:30 in favor of the power purchaser for the first 0.5 percent efficiency improvement above currently NEPRA determined benchmark efficiency, followed by 60:40 for next 0.5 percent, followed by 50:50 percent for next 0.5 percent, and finally 40:60 for any efficiency above that.
Power purchaser shall not share in any efficiency losses.
For oil fired projects, any future savings in operation and Maintenance (O&M) would be shared 50:50 after accounting for any reserves created, or to be created, for major overhauling, to be reviewed by power purchaser or NEPRA as mutually agreed. If the reserve for major overhaul remains unutilized, it would be shared in the ratio of 50:50 between the power purchaser and the IPP. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference would be carried over to the future years. Power purchaser would not share in O&M and major overhaul losses.
For gas fired projects, fuel and O&M would be taken as one consolidated line item and any future net savings would be shared 60:40 in favor of the power purchaser and IPP respectively, after accounting for any reserves created, or to be created for major overhaul if the reserve for major overhaul remains unutilized, it shall be shared in the ratio of 60:40 between the power purchaser and the IPP. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference would be carried over to the future years. However, power purchaser would not share fuel, O&M and major overhaul losses.
In order to ensure that the actual efficiency is matching the efficiency reported in the financial statements, the power purchaser agreed to appoint a reputable international independent consultant to perform a one-time detailed heat rate test for all IPPs, for which the GoP and IPPs' representatives would agree on the ToRs, standards and corrections required.
For all future invoices, Delayed Payment Rate (DPR) under the PPA would be reduced to KIBOR + 2 percent for the first 60 days after the due date, and thereafter at KIBOR + 4.5 percent as per the PPA. For IPPs where Gas Supply Agreement is signed with an entity with significant ownership of GoP, same DPR rates would be payable by the IPP to gas supplier. Further, for all invoices, the power purchaser would ensure that payments follow the PPA mandated FIFO payment principle.
In future, for foreign equity investment presently registered with SBP, the Return on Equity (RoE) including Return on Equity During Construction (RoEDC) would be 12 percent per annum, and for local investors, the RoE including RoEDC would be changed to 17 percent per annum in PKR on NEPRA approved equity at CoD calculated at USD/PKR exchange rate of PKR 148/USD, with no future USD indexation. The miscalculation of IRR, on account of periodicity of payments, has been addressed through reduction in return component.
The Government of Pakistan would actively support the creation of competitive power markets. All projects would convert their contracts to Take and Pay basis, without exclusivity, when Competitive Trading Arrangement is implemented and becomes fully operational, as per the terms defined in the license of each IPP. In the interim period, CPPA (G) shall work towards providing access to the bilateral market at the earliest.
In order to assess if a company has made any excess profits, the reconciled numbers between the Committee and the IPPs engaged in this exercise, would be submitted to NEPRA. As a legal body vested with the authority for tariffs, NEPRA will hear and decide this matter in accordance with the 2002 Power policy, tariff determination and PPA, and provide for a mechanism for recoveries, where applicable.
Payment of the receivables of the IPPs is an integral part of this MoU. The power purchaser and GOP agreed to devise a mechanism for repayment of the outstanding receivables with agreement on payment of receivables within an agreed time period which will be reflected in final agreement to be signed. The power purchaser would ensure adherence to its contractual obligations.
The parties agreed that nothing contained in the MoU would be deemed or be construed as an admission of liability, wrong doing or improper action on the part of the IPP. Except for the matters provided in this MoU nothing shall prejudice any other rights and remedies available to the parties under the relevant agreements.
This MoU or any of the terms of the MoU would not be construed as an alteration or amendment to the Power Purchase Agreement or Implementation Agreement. Once NEPRA, Federal Cabinet and Board of Directors of the IPP approve the terms of the MoU, the parties will agree and document details and procedures of these understandings preferably within 30 days, after which the same shall be submitted to NEPRA and CPPA (G), to be followed by legal documentation to reflect the amendments needed in the relevant agreements.
The MoU would be valid for six months and stand terminated on signing of the detailed agreement.
The panel also discussed privatisation of RLN-G based power projects in the event their tariff is reduced. It was stated that Minister for Privatization has already cautioned the Cabinet that in case of revision of PPAs of RLNG-fired power plants, their sell off process will be delayed.
Copyright Business Recorder, 2020
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