Revised payment terms for generation on LNG: CPPA-G to be authorised for signing agreements

The government is to authorise CPPA-G to ink interim tripartite agreement on revised payment terms for generation on LNG by Altern Energy Limited (AEL) with Kot Addu Power Company and other public sector stakeholders, official sources told Business Recorder. AEL with a capacity of 29MW established according to 1994 power policy was operating on pipeline quality gas supplied by SNGPL prior to supply of RLNG, on take-and-pay basis.
The existing Power Purchase Agreements (PPA) entitles the company to raise invoices on the 1st working day of every month, payable by the CPPA after 15 days of receipt of such invoice. Moreover, Kot Addu Power Company Limited (KAPCO) having capacity of 1345 MW is operating on LSFO as main fuel due to non-availability of gas.
However, now with availability of RLNG, government's preference is to run plants more on RLNG because it is cheaper than furnace oil and also higher output attracting lower VO&M. The existing PPAs entitles Kapco to raise invoices on the 1stworking day of every month, payable by the CPPA after 25 days of receipt of such invoice. Similarly, the public sector Gencos are also running on RFO and SNGPL is supplying RLNG to these Gencos on as and when available basis.
According to sources, billing cycle of the Gencos is also based on 30 days. However, SNGPL has demanded billing cycle of 7 + 3 days from the IPPs (ie raising of invoices after every 7 days, which will be payable after 3 days of receipt). Since this is not covered under existing PPAs of these IPPs and Gencos; therefore, the IPPs and Gencos demanded to have back to back arrangement with CPPA to neutralize them against any additional financial implications, sources said.
As the revised payment mechanism under the tripartite agreement is not in line with the existing PPAs and GSAs, therefore, in order to enable IPPs and Gencos to make weekly payments to SNGPL for RLNG supplies, it is imperative that IPPs must also get revenues on weekly basis from CPPA-G against the electricity supplies to CPPA-G.
The sources further said that the PPAs signed between CPPA-G and the related Companies provide for a bi-weekly or monthly billing cycle, which is required to be changed and brought on weekly billing cycle to enable all the stakeholders (PSO, SNGPL, SSGC, IPP and Gencos) to ensure timely payments to RLNG suppliers and, resultantly, ensure continuous supplies of LNG to Pakistan. Any disruption in the timely remittance of payments in the entire chain of payments is likely to jeopardize the uninterrupted supply of LNG to power sector. Since the existing PPA has been approved by the ECC of Cabinet; therefore, any deviation from the PPA also requires approval from the same forum.
According to sources, the parties acknowledge that certain amendments are to be made in the GSA and PPA between the parties. Since amending the GSA and PPA require considerable time; therefore, parties are agreeing to enter into an interim arrangement with an intent to reflect it in the subsequent amendments on the same basis of interim agreements signed with Saif, Saphire, Orient Halmore, Roush Power and FKPCL.
These agreements were signed after approval from ECC in December 2017. For this purpose, Tripartite Agreements are required to be signed between SNGPL, CPPA and Altern Energy Limited/Kot Addu Power Company Limited. After approval from ECC, similar Interim Arrangements were signed with Rousch Power & FKPOL.
The validity of the long-stop date of these Interim Agreements is June 30, 2018 for the execution of the GSPA and the PPA. This long-stop date is required to be rationalized and linked to the execution of the GSPA and amendment to the PPA. Therefore, validity of the Interim Agreements of Rousch and FKPCL may be extended till the execution of the GSPA and the amendment to the PPA.
The tripartite agreements with AEL and Kapco have been drafted on the analogy of already signed and executed agreements with the approval of the ECC of the Cabinet's meetings on June, 28 2016 and December 29, 2017.
The salient features of the draft agreement are as follows: (i) AEL and Kapco shall invoice CPPA-G, the fuel cost component along with GST after 7 days of generation using RLNG for first three weeks of the calendar month, while the fourth invoice shall be raised for the remaining number of days of the month and CPPA shall pay such invoices without any deductions;(ii) at the end of each month, the AEL and Kapco shall submit Energy Purchase Price (EPP) invoices to CPPA-G, which shall include fuel cost, variable O&M cost and GST components and deducting the fuel cost component and GST already invoiced to CPPA.
These invoices shall be processed as per the terms of existing PPA;(iii) the rate of delayed payment interest charged by IPPs to CPPA shall be 1 month KIBOR + 2% for the delay in payment from buyer due date;(iv) AEL and Kapco shall provide a Standby Letter of Credit (SBLC) to SNGPL amounting to Rs 543 million and Rs 12.3 billion, respectively.
The related SBLCs shall be maintained during the terms of this agreement and its amount may be reviewed from time to time and; (v) these agreements shall be valid until GSA/PPA's are amended as contemplated. The validity of the Interim Agreements of Rousch and FKPCL may be extended till the execution of the GSPA and the amendment to the PPA.
According to sources, public sector Gencos (Gencos I, II and III), shall invoice CPPA-G, the fuel cost component along with GST after 7 days of generation using RLNG for first three weeks of the calendar month, while the fourth invoice shall be raised for the remaining number of days of the month and CPPA shall pay such invoices without any deductions. At the end of each month, the AEL and Kpaco shall submit EPP invoices to CPPA-G, which shall include: fuel cost, variable O&M cost and GST components deducting the FCC and GST already invoiced to CPPA. These invoices shall be processed as per the terms of existing PPA. The agreement with the GENCOs will be effective from 2nd May 2018.