Capacity payments: IPPs likely to get undue but legitimate edge

The legal fight between the Independent Power Producers (IPPs) and National Transmission and Despatch Company (NTDC) at London Court of International Arbitration (LCIA) is expected to provide undue but legitimate edge to the IPPs with respect to capacity payments in future, well informed sources told Business Recorder.
Nine IPPs that recently sought international arbitration are: (i) Atlas Power Limited, ii) Halmore Power Generation Company (Pvt) Limited; (iii) Liberty Power Tech Limited ;(iv) Nishat Chunian Power Limited; (v) Nishat Power Limited;(vi) Orient Power Company (Pvt) Limited; (vii) Saif Power Limited;(viii) Sapphire Electric Company Limited; and (ix) Hub Power Company Limited.
IPPs have served legal notice through international law firm, on NTDC (power purchaser) for payment of Rs 11 billion on account of Capacity Purchase Price (CPP). In case of non-payment, the IPPs have threatened to file claim for arbitration before LCIA.
The recent litigation is in wake of determinations made by Justice Sair Ali (retired) against NTDC making it liable to pay the capacity payments for delay in payments. The NTDC had 90 days from the date of expert determination to dispute or challenge these findings/ recommendations which it failed to do. Accordingly, apart from unfavourable recommendations and findings by the experts, NTDC has provided another cause of action for claim of these payments.
The IPPs claim that delay in payments by the power purchaser caused shortage of funds due to which they could not purchase fuel and hence could not make their power plants available. Since the delay was on the part of power purchaser, they argued that they are entitled to capacity purchase price for the period of delay in payments by the power purchaser. Their stance was endorsed by the experts who happened to be retired justices. Surprisingly, at the time of expert appointments, NTDC agreed with IPPs over such appointments instead of industry experts with experience of complex power transactions and the financing documents.
In accordance with international sales agreement the sellers remedy for non-payment is holding and suspending future supplies of goods and services. What cannot be done is that the seller does not supply or is not in a position to supply the goods and services and yet is compensated as if it has supplied the goods or services. This is tantamount to deemed capacity payments which are unconscionable and provide undue benefit to the sellers which cannot be upheld under any legal theory, jurisprudence or contract and above all this practice has been rejected by the Supreme Court of Pakistan in RPP case .
"If the concession is not challenged, the power purchaser will have to make payments in billions without getting any supply of power and the consumers' tariff will escalate. The risk of fuel non availability under the PPA clearly lies with the IPP which cannot be shifted or linked to power purchaser's default. The IPPs have recourse to the GoP guarantee and available option of terminating the PPA in case there is irreparable hardship for which a substantial burden of proof has to be evinced and discharged which IPPs have failed to do," said power sector legal expert/ former legal advisor PPIB, Barrister Asghar Khan while talking to Business Recorder.
When asked to comment on current dispute between the IPPs and NTDC which has landed at the LICA, he maintained that IPPs claim is fragile as it is not supported with the express terms of the PPA, notwithstanding the commercial sense that IPPs are propagating.
He further stated that contract cannot be re-written or any terms and conditions cannot be implied into the contract especially where financial burden on a particular party is being increased. As per the terms of the PPA, the delay in payments is compensated through delay payment interest rate at KIBOR plus 4% and the power purchaser cannot be doubly punished. Furthermore, the experts are patently wrong, he contended, as they have added a remedy of capacity payments in case of faults attributable to the power purchaser which was not there in the PPA and have deleted/ omitted the remedy of delay payment which was there in the PPA. Hence the substratum of the PPA has been fundamentally altered which is not permissible other than through amendment to the PPA duly approved by the power purchaser and the Government of Pakistan through the ECC of the Cabinet.