Late payment: Nine IPPs agree to charge two percent mark up instead of 4.5 percent

The government and nine Independent Power Producers (IPPs) have reportedly reached an agreement in principle, according to which IPPs will charge mark up at 2 per cent in case of late payment for the first 60 days instead of 4.5 per cent, well informed sources told Business Recorder.
This understanding was reached between the representatives of ten IPPs and Power Division's officials a couple of days ago, targeted to curtail and contain the gigantic circular debt which is hovering at around Rs1.5 trillion.
The following nine IPPs are in litigation with the Central Power Purchasing Agency Guaranteed(CPPA-G): (1) Hub Power Company Limited (Hubco - LCIA Arbitration ;(ii)) Orient Power Company (Private) Limited - LCIA Arbitration ;(iii) Atlas Power Limited - LCIA Arbitration ;(iv) Halmore Power Generation Company Limited - LCIA Arbitration ;(v) Liberty Power Tech Limited - LCIA Arbitration ;(vi) Nishat Chunian Power Limited - LCIA Arbitration ;(vii) Nishat Power Limited - LCIA Arbitration ;(viii) Saif Power Limited - LCIA Arbitration and; (ix) Sapphire Electric Power Company Limited - LCIA Arbitration. The sources said IPPs have also agreed to do away with compound interest (addition of interest to the principal sum of a loan or deposit) and opt for only simple interest.
The sources said the government and nine IPPs have also agreed to jointly withdraw cases from the London Court of International Arbitration (LCIA).
The government has also asked IPPs to quash their principal amount, interest rate and legal cost. This issue will be settled in the light of agreement's clause i.e. other force majeure mechanism as both sides i.e. Government and IPP did not implement the agreement due to different reasons. "IPPs have given a very big concession to the government by agreeing to charge mark up at 2 per cent instead of 4.5 per cent for initial 60 days, simple interest instead of compound interest and withdrawal of case from LCIA," said an official. However, both parties have agreed that rate of mark up will be 4.5 per cent after 60 days. The government has also agreed to make payment of invoices on the basis of first come first serve instead of giving favour to anyone specific IPP.
"This agreement is reached in good faith as government wanted some concessions from the IPPs," said one the participants of the meeting.
If the government succeeds in getting similar concessions from other IPPs, this would help reduce circular debt as the stock of arrears of each IPP is about Rs80-90 billion and waiver of 2.5 per cent on mark up adds up to a huge amount.
Last year, during discussions at a high level meeting presided over by the then Prime Minister, Shahid Khaqan Abbasi, the Attorney General for Pakistan (AGP) stated that litigation cases of IPPs in local as well as in international courts are required to be dealt with meticulously, as substantial government money has been incurred on litigation. He proposed that a taskforce on IPPs may be constituted to recommend appropriate policy response to the government for swift and financially least onerous outcome of these disputes.
The taskforce may include the following: (i) Attorney General for Pakistan- Chairman; (ii) Secretary, Power Division- Member; (iii) Secretary, Finance Division- Member;(iv) Secretary, Petroleum Division- Member; and (v) Secretary, Law & Justice Division- Member.
The committee may co-opt members from PPIB, CPPA and NTDC. Another committee was also constituted headed by Secretary Finance for negotiation with IPPs on settlement of their claims out of court on the suggestion of the then Secretary to the Prime Minister.