International lenders have reportedly rejected the power sector Market Operators, Standards and Procedure Rules 2015 prepared by the Government of Pakistan (GoP), official sources told Business Recorder. National Electric Power Regulatory Authority (Nepra) approved Market Operator Registration, Standards and Procedure Rules 2015 on May 27 and government notified on May 28.
According to sources, Nepra modified the licence for NTDC on May 29, 2015, removing NTDC's right to procure power or to make new arrangements for the purchase of power beyond that needed for the provision of ancillary services. The mission comprising officials from the World Bank, Asian Development Bank (ADB) and JICA also received on May 28 and 29 a set of documents that related to the separation of the market operations function as follows: the Market Operator Registration, Standards and Procedure Rules 2015 as notified by government; the licence proposed modification for NTDC; two versions of the draft commercial code, one dated May 26 and one dated May 27; a draft Administration Agreement for PPAs held by NTDC and which also includes the administration of PPAs held by Wapda WPPO in respect of 1994 Policy IPPs; a revised draft Business Transfer Agreement (BTA) between NTDC and CPPA (G); a revised draft Power Purchase and Agency Agreements to be signed between CPPA (G) and each Disco; Securities and Exchange Commission of Pakistan's (SECP) approvals of the Discos' application to appoint CPPA (G) as their sole purchasing agent; a letter to Federal Board of Revenue (FBR) requesting changes to the tax regime governing CPPA (G); draft PPAs between Gencos and CPPA (G); and a draft PPA between WAPDA Hydel and CPPA (G).
The mission noted that documents represented a considerable departure from the earlier agreed approach to the separation of NTDC and CPPA (G), in particular: The original summary on Pakistan Power Sector Reform - CPPA (G) of April 30, 2014, subsequently approved by the ECC on May 8 set out the timetable and sequencing previously agreed with earlier missions is no longer relevant. It included, for example, the signing of new PPAs with Gencos and Wapda hydel within 15 days of the ECC approval of the summary. The mission noted that a new ECC summary was under preparation and requested that it be provided.
The Market Operator Registration, Standards and Procedure Rules 2015 are a sub-set of earlier Market Rules upon which previous missions had provided extensive comments, including as recently as the April 2015 mission. The mission itself only received a copy of the Rules after they had been approved and noted that some of the earlier comments have not been addressed and as a result the Market Operator Registration, Standards and Procedure Rules 2015 are inadequate in a number of ways, including that there is no reference to K-Electric.
The mission also noted that the Rules had been approved with no consultation with affected parties including IPPs and K-Electric, and indeed without public disclosure of any kind. The mission expressed the view that this put the Market Operator Registration, Standards and Procedure Rules 2015 at risk of challenge. The modification to NTDC's licence in part relies on the Market Operator Registration, Standards and Procedure Rules 2015 to justify not holding a licence hearing for CPPA (G). If the Rules are at risk of challenge, so is the licence modification.
The updated BTA makes a significant change in the sequencing of actions. The signing of PPAs between the thermal power plants of Gencos and CPPA (G) has been delayed to a transition period of up to two years, despite the heads of agreement for those PPAs having been approved by the Genco Holding Company Board more than one year ago and the final draft template being provided by the government in April 2015 (and again in the package of documents received during the mission). Similarly the PPA between Wapda hydel and CPPA (G) has been made available to the mission but is not proposed to be signed until the transition period. Furthermore, the BTA provides no incentive for the completion of these actions within the two years.
The administration agreement between NTDC and CPPA (G) - which was provided to the mission for the first time on May 28, despite many earlier requests - proposed not only the administration of the PPAs now held by NTDC in respect of 2002 Policy IPPs, but the 1994 Policy IPPs held by Wapda's WPPO. It is by no means clear whether this is a feasible and legitimate option.
The mission further noted that given the large volume of documentation and the significant changes, it would take some time before a review could be completed and that it would be able to provide its comments and request clarifications. The changes were of such significance that it would also be necessary for further management review in both institutions, since the earlier review had been on the basis of a different approach to reform.
The mission further observed that despite government's stated confidence that all the actions can be completed within the required timeframe in the previous missions and the mission's caution of delays, external and internal circumstances did not allow for expected progress of reforms.
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