ISLAMABAD: The Cabinet Committee on Privatisation (CCoP), Ministry of Privatisation decided to expedite sell-off/management contract process relating to power Distribution Companies (Discos) as already included in the first phase and submit a viable implementation plan in consultation with the Power Division, well-informed sources told Business Recorder.
These directions were issued at a recent meeting of the CCoP headed by Finance Minister Dr Abdul Hafeez Shaikh during discussion on sell-off status of National Power Parks Management (NPPMCL).
Ministry of Privatization noted that several meetings of the sub-committee have been held to resolve the issues threadbare relating to Privatization of NPPMCL and deliberations were submitted as under:(a) revised project documents and changes in Risk Matrix - Power and Petroleum Divisions; (i) discussions were held with stakeholders to incorporate decision of the CCoE of September 18, 2020 regarding change of date in 66% take or pay commitment. Revised arrangement has been agreed involving-CPPA-G providing indicative Annual Production Plan (APP) annually and binding Monthly Production Plan (MIT) at least 75 days before start of each month, and SNGPL to accept firm orders picked by the NPPMCL 75 days in advance for a particular month. The project documents i.e. Power Purchase Agreement, Gas Supply Agreement and Implementation Agreement, have been shared with the stakeholders after incorporating the changes. Power and Petroleum Divisions have accordingly agreed to submit the summary for approval of CCoE; (ii) historically Gas Calorific Value (GCV) for the gas provided to the concerned power plants was around 1000 Btu. Petroleum Division has confirmed the GCV value for future up to 1040 Btu. NIPMCL will have to obtain the estimates of the capital expenditure to accommodate gas with revised GCV. This additional cost regarding change in KV value is proposed to be borne by either NPPMCL or SNGPL or in the alternative, the investors will adjust this amount in their bid valuation.
b) Provision of Debt Financing in Tariff Determined by NEPRA: (i) National Electric Power Regulatory Authority (NEPRA) has allowed local debt financing KIBOR + 1.8 percent in the tariff determination. During the meetings, NEPRA was asked to clarify whether foreign debt financing as per NEPRA guidelines i.e. LIBOR + 4.5 percent would apply for potential bidders or not. NEPRA indicated that the bidders may arrange foreign debt financing within the limit of KIBOR + 1.8%, aid any currency exchange rate risk shall be borne by the bidder(s). The bidders however, require multilaterals to provide financing for the transaction. Consequent upon clear stance of Nepra, the bidder(s) may either opt for local debt financing within the prescribed limits or may avail foreign debt financing, bearing foreign currency exchange risk on their own and in that event the bidder(s) will make adjustment in their valuation. As another option NPPMCL may replace the debt of Government of Pakistan (GoP) by borrowing from the local/international banks before privatization. Meetings are being scheduled in the current week with the local banks to explore the possibility of debt financing.
c) Income tax issues - Finance Division, FBR and CFPA-G: (i) under Section 132 of Income Tax Ordinance, 2001, all IPPs are income tax exempted, while being public sector power generation company NPPMCL is not entitled for income tax exemption. In this connection FBR has sought advice from Law & Justice Division whether the Company will be entitled for tax exemption by change of ownership or not;(ii) as per transaction structure, the company may be split into two separate companies. Section 132 of the Income Tax Ordinance, 2001 does not apply to IPPs which are formed after split. In the discussion of the Sub-Committee, it has been recommended that IBR and Finance Division will resolve this issue by granting tax exemption under Section 132 of the Monte Tax Ordinance, 21/01, keeping IMF in the loop; (iii) NPPMCL is availing tax credit under Section 65D of Income Tax Ordinance, 2x11 on the basis of its capital structure which is to be changed as per tariff determination. On change of capital structure, ie, debt equity ratio of 70:30 the credit will no more be availed by NPPMCL and tax credit already availed (about Rs 8.5 billion) will have to be deposited by NIPMCL. The company has liquidity problems and, in such case, GoP CPPA-G will have to arrange the amount for payment of the post-tax liability. Minister for Finance has tasked the Secretary, Finance Division and FBR to resolve this issue at the earliest.
Ministry of Privatization requested the CCoP to deliberate and decide on the proposed options and to recommend income tax exemption for proceeding further.
After detailed discussion, the CCoP directed Ministry of Privatization to place all issues related to privatization of National Power Parks Management Company Limited before the Committee constituted already by the CCoP on November 16, 2020 to finalize recommendations and submit the same to the CCoP for consideration. The committee has held its meeting and finalized its recommendations.
The CCoP further directed Ministry of Privatization to expedite privatization/management contracts relating to Discos as already included in the first phase and submit a viable implementation plan, in consultation with Power Division to the CCoP for consideration. Power Division was also directed to expedite completion of requisite actions prior to the privatisation in this regard. The CCoP also directed Ministry of Privatisation to complete process, on fast track basis, relating to privatisation of all entities included in the first phase and submit report to the CCoP.
Copyright Business Recorder, 2021
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