ISLAMABAD: The Central Power Purchasing Agency–Guaranteed (CPPA-G) has asked Audit to settle an audit para about “irregular payment of Rs 151 billion to KAPCO due to illegitimate extension in Power Purchase Agreement (PPA) without approval of NEPRA.”
KAPCO was privatised in 1996 and its PPA was signed on June 27, 1996. The tariff terms and conditions of PPA were also agreed by GoP through Privatisation Commission which were incorporated in PPA with mutual agreement of parties. The salient features of the PPA were as follows: (i) aggregate term of the PPA was 25 years;(ii) two-part tariff constituted capacity payments and energy payments; and (iii) the payments were become due after 25 days of submitting the claim.
According to CPPA-G, starting from 2008 onwards, Wapda was facing two-fold issues. One the one hand the country was facing acute electricity shortage and on the other it was unable to make timely payments to KAPCO due to stringent cash flow issues due to which the power company was unable to procure furnace oil for generation purpose, though technically, the plant was available.
‘No capacity payments’ received since PPA expiry in October 2022, says KAPCO
Moreover, WAPDA also imposed Liquidated Damages (LDs) on KAPCO due to forced outages which led to a dispute between the respective parties that continued till 2016. During the said period, the quantum of the aggregate LD piled up to Rs 27.7 billion which was disputed by KAPCO.
The dispute remained under discussion between the parties for its resolution till 2018 when KAPCO took this LD dispute matter to International Chamber of Commerce (ICC) for arbitration.
CPPA-G further explained that the Government of Pakistan constituted a Committee for power sector audit, circular debt resolution and future roadmap in August 2019, to look into the issues faced by the power sector, including purportedly higher profits made by the IPPS and to recommend a way forward. The Committee presented its report in March 2020, highlighting the issues faced across the power sector.
In pursuance of these recommendations, based on Cabinet Committee on Energy’s decision to initiate negotiations with the IPPs, the Federal Government constituted another committee (“Negotiation Committee”). Following successive rounds of discussions with the IPPs and other power sector stakeholders, the negotiation committee signed Memorandum of understanding (MoUs) with 47 IPPs.
The negotiation committee submitted its complete report to CCoE, which approved the constitution of another committee i.e. Implementation Committee on September 24, 2020 for the implementation of the MoUs and the recommendations in the report. Subsequently, the CCoE also gave explicit approval of the MoUs and the same was approved and ratified by the Cabinet on December 01, 2020.
The Implementation Committee conducted various sessions with IPPs to convert the MoUs into binding agreements to devise a payment mechanism to clear their outstanding payables.
On February 8, 2021, the ECC approved the “Payment Mechanism and Agreements with IPPs.” Under the ECC approved Amendment Agreements on February 11, 2024, it was agreed that the 485 days in respect of which LD is imposed on KAPCO will be treated as OFME period under Section 13 of the PPA on Jun 27, 1996 and KAPCO will perform for these 485 days without getting any additional capacity payments in such a way that the aggregate PPA term would remain same for i.e. 25 years.
CPPA-G argued that during these 485 days, KAPCO was operated under the Merit Order and was paid energy payments to the tune of Rs 151 billion for generating electricity units during these 485 days which was also approved by NEPRA under its Fuel Charge Adjustment decisions, adding that in absence of KAPCO, NPCC would have generated the respective energy units by operating any other power project lower in the Merit Order which would have resulted in higher energy cost for the consumers.
CPPA-G stated that it is clear from the facts that the plant was operated on Merit Order and NEPRA approved its cost for passing on to the consumers under its regulatory process, hence there was no financial loss caused to the Power Sector by operating KAPCO for these 485 days, therefore the Audit is requested to settle the subject draft para.
Copyright Business Recorder, 2024
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