ISLAMABAD: The Cabinet Committee on Energy (CCoE) has directed Power Division to place pending Power Purchase Amendment Agreement (PPAA), Interconnection Agreement (ICA), and other agreements with K-Electric (KE) for approval in its next meeting, well-informed sources told Business Recorder.
K-Electric Management and its Board members recently held meetings with top decision-makers, seeking their help for early approval of pending agreements, after which things are being pushed forward with full force.
According to sources, on March 4, 2022, during the CCoE meeting, Minister for Planning, Development and Special Initiatives/ Chairman CCoE, Asad Umar enquired about the status of the PPAA, ICA and other allied agreements with K-Electric.
Secretary, Power Division, Syed Asif Hyder Shah informed the forum that it was taking time as the agreements were under review as they entailed massive implications, and efforts were afoot to ensure that maximum possible benefits accrue to the GoP. The CCoE; however, observed that the finalization of the agreements was delayed for many months and the same must be placed before the CCoE in its next meeting for consideration/approval.
Earlier, Finance Minister Shaukat Tarin had directed Power Division to place KE-related three draft agreements, i.e., PPAA, ICA and TDS before the Cabinet Committee on Energy (CCoE) in its forthcoming meeting.
Tarin asks PD to place KE-related draft agreements before CCoE
Tarin gave these instructions while presiding over an inter-ministerial meeting, convened on the request of the Privatisation Commission to sort out pending issues related to some transactions. The three agreements, which will be signed between KE, NTDC and CPPA-G, will pave the way for the signing of the Arbitration Agreement (AA).
Finance Minister also directed Privatisation Commission (PC) to share KE’s proposed draft Arbitration Agreement (AA) with the Attorney General of Pakistan.
According to the Privatisation Commission, the issuance of the National Security Certificate (NSC) by the Privatisation Commission for the transfer of KES’s 66.4% shares in KE to Shanghai Electric Power Company Ltd (SEP) has been intrinsically linked to Karachi Electric’s payables/ receivables with the government parties. This issue has remained under consideration at various decision-making forums of the government. It was finally agreed among the stakeholders to resolve this issue through arbitration.
According to PC, after a general consensus of the stakeholders on the draft Arbitration Agreement in March 2021, the matter was presented before ECC for recommending a further course of action to the Cabinet. ECC in its meeting held on May 21, 2021, decided that Power Purchase Agency Agreement (PPAA) and agreement on Tariff Differential Subsidy (TDS) are to be initially signed in order to address future payment issues.
A Committee was also constituted by the ECC to finalize the draft AA with KE. The decision of ECC was ratified by the Cabinet. Approvals of the proposed pacts are still in process in the Power Division. PC will proceed further and subsequently convene a meeting of the Committee for finalizing the draft AA to address the issue of past receivables/payables of KE.
On Feb 15, 2022, KE furnished a modified draft AA, after replacing the words ‘equity and fairness’ appearing in clauses 3 and 5 of the earlier draft.
After deliberation on the matter, Finance Minister directed that the fresh draft AA shared by KE be forwarded by Privatisation Commission to Attorney General for Pakistan for views/ comments. Further, Power Division shall submit the drafts of PPAA, InterConnection Agreement (ICA) and agreement on Tariff Differential Subsidy (TDS) to CCoE for its consideration /decision in its next meeting.
Insiders claim despite substantial consensus on the drafts of the three agreements that a few areas have not been agreed with KE. These include the issue of baseload versus firm capacity in ICA and late payment surcharge on account of regulatory delays in TDS agreement.
On the issue of base load verses firm capacity, NTDC maintained that K-Electric is to be treated at par with rest of the country on pro-rata basis in line with the Grid Code 2005, and if there is any shortfall of available power in NTDC system, due to any reasons whether force-majeure or otherwise, K-Electric shall have to share the same on pro-rata basis with other Distribution Companies.
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However, KE desires that the power provided to it be made available on ‘base-load’/ unwavering basis and power curtailment can only be done during force majeure. Another issue that is still unresolved between the Power Division and Karachi Electric is Late Payment Surcharge (LPS) for regulatory delays.
KE argues that tariff determinations, monthly or quarterly tariff adjustments are to be made in a timely manner as per the statutory timelines (as defined in NEPRA Act and rules and regulations) and in case of any delays beyond these statutory timelines, a mechanism for compensation of cost of such delays in respective tariff of K-Electric shall be allowed by the regulator.
Power Division, which has to pay the amount of tariff differential subsidy, through its entity CPPA-G, the market operator, has not supported the proposal. -The power Division has requested the CCOE to approve the appended draft PPAA, ICA and TDS agreement covering the existing supply (650 MW) and additional supply of 1400 MW after going through the versions of Power Division/ NTDC.
Copyright Business Recorder, 2022
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