ISLAMABAD: M/s Hub Power Company (Hubco) has accused Central Power Purchasing Agency- Guaranteed (CPPA-G) of taking ‘unlawful and unfair’ actions against its sister company, Laraib Energy Limited (LEL) with respect to Operation and Maintenance (O&M) cost.
Laraib Energy Limited (LEL) is the first private sector 84-MW hydropower project of Pakistan and AJ&K .The Project achieved Commercial Operations Date (COD) on March 23, 2013. National Electric Power Regulatory Authority (Nepra) approved LEL’s tariff on June 13, 2016. The Project being located in AJK falls under the purview of Nepra (Import of Power) Regulations 2017; therefore it submits the tariff adjustments requests to Nepra through CPPA-G.
In a letter written by Chief Executive Officer (CEP) Kamran Kamal to Additional Secretary in-charge, Rashid Mahmood Langrial, the power company sought the latter’s intervention and necessary support, and stated that their foreign lenders required O&M of the project to be carried out by an internationally recognized O&M operator. Accordingly, TNB Remaco, a Malaysian company, was appointed as O&M contractor for an initial five-year term. It was a limited scope services contract only, while the remaining O&M scope was undertaken by the Project Company itself.
Premature termination of PPA of Hubco power plant recommended
In 2018, LEL changed the O&M contractor in full compliance with terms of PPA and IA. Hub Power Services Limited, a sister concern, was appointed as O&M contractor effective from March 23, 2018.
The O&M component of the tariff was determined by Nepra based on CPPA-G’s recommendation after usual due diligence, benchmarking and scrutiny for the entire PPA term of 25 years.
According to the power firm, tariff so determined is subject to quarterly adjustments for changes in exchange rate and consumer price indices as per the indexation terms contained in the tariff and PPA. However, neither the tariff determined by Nepra nor the PPA provides for any change in tariff based on actual costs or pursuant to any change in O&M contractor.
CPPA-G took notice of the change in O&M contractor and, in November 2018, requested Nepra to evaluate the costs of LEL’s new O&M contractor and sought a reduction in O&M tariff in case of any savings. Instead, Nepra in its response of August 2021 urged CPPA-G to renegotiate the O&M tariff prospectively so that the future impact of any saving is redressed and accordingly submit the amended PPA for approval of the Authority under Import of Power Regulations.
However, instead of carrying out the process of negotiation with LEL in a fair manner in light of Nepra’s guidance, CPPA-G unlawfully withheld LEL’s application for quarterly indexation which was clearly an attempt by CPPA-G to unfairly prejudice LEL in the negotiation process by placing LEL in financial distress.
Subsequently, after LEL’s intervention, CPPA-G submitted the application for quarterly indexation for the July to September 2021 quarter to Nepra, but after unilaterally altering the application to exclude indexation of O&M component.
While Nepra initially excluded the indexation of O&M component as per CPPA-G’s request, it subsequently reviewed its earlier decision (pursuant to Motion for Leave for Review (MLR) filed by LEL) and allowed full indexation including the O&M component.
In its decision on LEL’s motion for review, Nepra observed that CPPA-G was neither concluding the negotiations with LEL nor was it supporting LEL’s request for indexation of the O&M component of the tariff. The Authority also observed that this situation if allowed to continue was not sustainable as it will further aggravate LEL’s cash flow problems.
CEO Hubco has claimed that Haroon Masood of CPPA-G has a key role in crafting this baseless issue and is pursuing it in an unprofessional and vindictive manner against LEL. At the hearing for MLR, Haroon Masood of CPPA-G made unfounded and baseless allegations of misrepresentation against LEL. However, when asked to provide evidence in support of his claim, he failed to provide any evidence of such allegations to NEPRA as noted in Nepra’s decision on the MLR:
“The Authority noted that CPPA-G raised certain points during the hearing that the LEL’s submission made with regards to the COD tariff adjustment application in 2013 was based on misrepresentation therefore, a penalty may be imposed on LEL for wilfully concealing the facts, misleading the Authority with malafide intents, and fraudulently obtaining the O&M components. Considering the gravity of the allegations, the Authority during the hearing directed CPPA-G and LEL to have discussions on these allegations and report this within two weeks to the Authority.”
M/s Hubco argues that till today no written reply has been received from CPPA-G on the issue of misrepresentation. Similarly, during a meeting for negotiation on O&M tariff, Haroon Masood threatened to set off the amounts of alleged savings in O&M against LEL’s receivables from CPPA-G.
LEL filed a writ petition before the Islamabad Court against CPPA-G’s coercive stance that amounted to making a unilateral amendment to the PPA.
“LEL is not under any contractual obligation to renegotiate the O&M tariff following a change in O&M contractor. However, in light of Nepra’s guidance, LEL agreed in good faith to negotiate and address all legitimate concerns of CPPA-G and has even proposed a fair resolution. But CPPA-G continues to maintain an unreasonable and coercive position during negotiations while also continuing to use unfair means by seeking to withhold LEL’s O&M indexation which has resulted in delay of our rightful billing causing significant financial loss to LEL,” said Kamran Kamal in his letter.
M/s Hubco has requested Secretary Power to take notice of CPPA-G’s unlawful and unfair actions, and in particular, the baseless and false allegations by Haroon Masood against LEL.
Copyright Business Recorder, 2023
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