Hydropower projects: PM tells MoC, MoF and PD to sort out ‘issues’ with Korean cos

ISLAMABAD: The Prime Minister has directed Commerce Ministry, Finance Ministry and Power Division to sit with Korean companies and sort out their issues, aimed at ensuring Korean investment into the country, well-informed sources in Ministry of Foreign Affairs told Business Recorder.

The South Korean companies shared their issues with MoFA for taking up with the concerned authorities for their resolution.

According to MoFA, 147 MW Patrind hydropower project noted that the NTDC could not provide transmission line despite lapse of considerable time. The company had invoiced for an amount of approximately $ 25million. NTDC and the company had disagreement over the invoices and reached an understanding of nomination of an expert as a mediator.

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It further stated that sales tax on construction and operation and maintenance services be sorted out, adding that AJK promulgated Sales Tax on the Services @ 16% effective from July 1, 2015.

As a result, it cost an additional amount of around $ 20 million. The company wants that the government of AJK should reimburse the “Change in Tax”. On EPC Sales Tax, the company filed a suit in AJK High Court against AJK Tax Authority on May 28, 2019 and subsequently got stay order under September 8, 2019. Meanwhile, in the matter of O&M Sales Tax, the company submitted its first invoice to the government of AJK.

Koreans are of the opinion that NTDC is deliberately delaying all the procedures discouraging foreign investors from doing business in Pakistan. The GoP should take up this matter more seriously and resolve it in a professional manner as soon as possible.

The company submitted its tariff petition on NEPRA in August 2018, requesting to increase the tariff considering the dollar exchange rate and other factors. However, NEPRA has not approved the petition yet causing serious cash shortfall for the company.

The sources said, 215 MW Asrit–Kedam hydropower project has noted that the project is delayed due to litigation as ex-sponsor (Younas Brothers) filed legal suit in Sindh High Court2018. They (Younas Brothers) filed the case in Peshawar High Court in2019. The case is pending in Supreme Court since early 2019.

Korean investors have no idea when the legal case will be resolved. Under such circumstances the Korean enterprises facing litigation are shying away from investments.

The Korean side has suggested prompt Supreme Court decision as favorable for investment.

Issues faced by LOTTE Group in Pakistan are as follows: (I) PTA Tariff - to maintain 5% of fair tariff level like China and India; (II) Minimum Turn Over Tax - to reduce current 1.5% to 0.5% (same as high turnover low profit industries); (iii) legal suit by Lotte Confectionery (ownership issue); (iv) delay of issuance of notice to proceed on SPAT-GAH Hydropower Project to Lotte E&C; and (v) Lotte Chilsung’s issue of federal taxes, and water tariff.

Issues faced by Lower Spat Gah (LSG) hydropower project by Korea Hydro and Nuclear Power (KHNP) are as follows: Korea Hydro & Nuclear Co. Ltd (KHNP), ROK’s SOE initiated the 470 MW Lower Spat Gah hydropower project in collaboration with the Provincial government of KPK in 2018.

In 2021, KHNP in accordance with the Letter of Intent (LoI) issued by the Govt. of KPK, completed the bankable feasibility study in 2022. Tariff petition and application of generation licence have been halted by the concerned entity since the project is not included in the Indicative Generation Capacity Expansion Plan (IGCEP) for 2022-31.

According to MoFA, KHNP believes that there are material breaches between the policies and regulators of Pakistan. Key points of legal opinion from a legal firm (Lincoln’s Law Chamber, Islamabad) include the following: (i) the project is governed by LoI issued in 2021 and Power Policy 2015; (ii) inclusion of IGCEP is not required as per the procurement of the project that commenced prior to its enactment of National Electricity Plan 2021 and NEPRA Regulation 2022; (iii) cost-plus Tariff Regime for the project shall be applied in accordance with LoI, 2021; and (iv) exemption of NEPRA Regulation 2022 under Explanation (b) of Regulation 8(1) and Cost-plus Tariff are available for the Project under LoI, 2021.

The power company has requested that project may be developed in accordance with the applicable LoI, 2021 and Power Policy 2015 without inclusion in IGCEP.

Main issues of the project are as follows: (i) difference of interpretation of LoI, 2021 and agreement 2018 with Govt. of KPK; (ii) Lack of clarity on applicability of IGCEP and NEPRA (Electric Power Procurement) Regulation 2022 on the project; and (iii) applicability of cost-plus tariff even after IGCEP enforcement (least count criteria for licencing and tariff determination regime).

Copyright Business Recorder, 2024