The Private Power & Infrastructure Board (PPIB) has reportedly proposed to the Cabinet Committee on Energy (CCoE) that an out of court settlement be agreed with Independent Power Producers (IPPs) on Liquidated Damages (LDs), well informed sources told Business Recorder. Giving the details, the sources said, the ECC while approving the summary of June 28, 2016 in respect of the interim gas supply agreement pertaining to M/s Fauji Kabirwala and Rousch Power (Pakistan) Limited, approved the principle that the period during which the power plant is not available due to non-availability of fuel be treated as Other Force Majeure Event (OFME).
Rousch (Pakistan) Power (Pvt) Limited entered into Power Purchase Agreement (PPA) on February 25, 1995 with the Pakistan Water and Power Development Authority (WAPDA). The Power Purchase Agreement has been novated in favour of Central Power Purchasing Agency (Guarantee) Limited (CPPA-G) on May 9, 2017.
The company was unable to make available its capacity (MW) due to disconnection of gas by SNGPL for non-payments. The company alleged that this was the result of non-payment by the power purchaser as Rousch Power's only customer and source of cash flow is power purchaser ie CPPA-G. Therefore, Liquidated Damages (LDs) amounting to Rs 1.588 billion were imposed by CPPA-G on the company for its failure to deliver energy for a period of 86 days, between December 2012 and May 2013. Further, the operation of the Complex also remained suspended as a result of disconnection of gas for a further period of 28 days between December 11, 2016 and January 29, 2017. The LDs of this period are yet to be determined and imposed on the company.
The company has taken the position that its non-performance was due to non-payment of due payments by CPPA of capacity, energy and other miscellaneous invoices. The dispute was referred to former Chief Justice Syed Zahid Hussain, former Chief Justice, Lahore High Court as an expert under Section 15.1 and Section 15.2 of the PPA. It is to be noted that TNB Liberty Power Company also joined Rousch Power in this expert mediation proceedings wherein the expert gave his recommendations in favour of the IPPs and declared that LDs are not payable. TNB Liberty Power has already approached ICC and filed their request for arbitration under the PPA. Similar cases of twelve other IPPs namely Saba Power, Nishat Power, Nishat Chunian, Saif Power, Orient Power, Sapphire Electric, Lalpir, Pakgen and Hubco Narowal etc. were also referred to three different experts namely former Chief Justice Tassaduq Hussain Jillani, former Chief Justice, Supreme Court of Pakistan, Justice Sair Ali and Barrister Ahmer Bilal Soofi. These experts have also given their recommendations in favour of the IPPs primarily on the grounds that if the companies do not receive timely payment, they are not expected to maintain and operate the Complex/Plant. Thus, WAPDA/CPPA is not entitled to LDs.
In order to find an amicable solution to the issue of LDs, the CPPA Board of Directors in its meeting held on March 8, 2017 authorized the management to negotiate settlement with Rousch Pakistan Power (Private) Limited and other IPPs with similar issues on the same principle that the period during which the power plant is not operable due to non-availability of fuel be treated as other force majeure event to case with similar analogy.
Accordingly, after detailed discussions with Rousch Power (Pakistan) Limited, a draft settlement agreement was negotiated and presented to the CPPA Board of Director in its meeting held on May 5, 2017. The CPPA Board after due consideration accorded its approval.
Settlement of Liquidated Damages with Rousch Power (Pakistan) Limited and other IPPs, with similar issues, are proposed to work out on the following principles: (i) the period during which the operation of the power plant remained suspended due to non-availability of fuel be declared as "Other Force Majeure Event"; (ii) capacity payments paid during this period shall be recovered through adjustment against the late payment interest invoices of the Company along with the late payment interest at the rate of 50% of the total interest worked out upto the date of settlement agreement in lieu of waiving off right of the company to claim interest on interest ; (iii) the period during which the IPP was unable to make available the capacity and net electrical output on account of non-supply of gas/RFO shall be treated as an OFME under the PPA. Accordingly, the Company would not be entitled to Capacity Payments during such period and the Power Purchaser would not be entitled to impose LD on the company; and (iv) in case of any such eventuality in future it will also be considered as OFME.
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