Advisor to the Prime Minister on Finance Dr Abdul Hafeez Shaikh is to reconsider his approval given at the CCoE (Cabinet Committee on Energy) forum in the ECC - both chaired by Shaikh - to extend billions of rupees benefit to Independent Power Producers (IPPs) by waiving penalties, well informed sources told Business Recorder.
These directions were issued by the Federal Cabinet in its meeting held on September 17, 2019, with the Prime Minister in the chair, when the issue of amendment in Power Purchase Agreement (PPAs) of IPPs was tabled for ratification.
Power Division intends to amend Power Purchase Agreements (PPAs) with the IPPs to resolve dispute on Liquidated Damages (LDs) and imposition of penalties. The CCoE in its meeting held on August 28, 2019 approved the proposal of the Power Division about settlement of Liquidated Damages (LDs) issues with the IPPs. The Cabinet, however, rejected the CCoE decision as this issue was widely discussed in the electronic media in which the government was criticized. Minister for Power, Omar Ayub also held a hurriedly press conference to justify the decision of the CCoE.
The sources said, on September 17, 2019, when the CCoE decisions were tabled before the Federal Cabinet, members of the Federal Cabinet expressed reservations on Power Division's proposal for settlement of LDs and stressed the need for further examination of the case.
Power Division, however, explained that the matter had been deliberated in detail in the CCoE, however, if need be, it could be further discussed in ECC which has a wider membership of Cabinet members.
Giving the background, the sources said, on June 28, 2016, the ECC while approving a summary in respect of the interim Gas Supply Agreement (GSA) pertaining to M/s Fauji Kabirwala and Rousch Power (Pakistan) Limited, approved in 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 on February 25, 1995 with Pakistan Water and Power Development Authority (Wapda). The Power Purchase Agreement (PPA) has been novated in favour of Central Power Purchasing Agency-Guaranteed (CPPA-G) Limited on May 9, 2017.
Power Division maintains that the company was unable to make available its capacity (MW) due to disconnection of gas by SNPGL for non-payment. M/s Rousch Power alleged that this was result of non-payment by the power purchaser ie NTDC (now CPPA-G) as Rousch Power's only customer and source of cash flow is 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. According to the Power Division, the company has taken the position that its non-performance was due to non-payment of due payments by CPPA-G of capacity, energy and other miscellaneous invoices. The dispute was referred to former Chief Justice LHC, Syed Zahid Hussain as an expert under section 15.1 and section 15.2 of the PPA.
Power Division further stated that TNB Liberty also joined Rousch Power in this expert mediation proceeding wherein the expert gave his recommendations in favour of the IPPs and declared that LDs are not payable. TNB Liberty has already approached ICC and filed their request for arbitration under the PPA. Similar cases of 12 other IPPs are pending namely Saba Power, Nishat Power, Nishat Chunian, Saif Power, Orient Power, Saphire Electric, Lalpir, Pakgen and Hubco Narowal etc. were also referred to three different experts namely former Chief Justice, Tassaduq Hussain Jillani, former Justice Sair Ali and Barrister Ahmer Bilal Soofi. The experts have also given their recommendations in favour of the IPPs 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-G is not entitled to LDs.
The sources said, in order to find an amicable solution to the issue of LDs, the CPPA-G Board of Directors in its meeting held on March 8, 2017 authorized management to negotiate settlement with Rousch Pakistan Power (Private) Limited and other IPPs having similar issues on the same principles and to extend the principle earlier approved by the ECC in its decision of June 28, 2016, that the period during which the power plant is not available due to non-availability of fuel be treated as other force majeure events.
Accordingly, after detailed discussions with Rousch Power, a draft settlement agreement was negotiated and prepared and presented to the CPPA Board of Directors in its meeting held on May 5, 2017 which after due consideration accorded the approval.
The Power Division proposed to the CCoE that settlement of LDs with Rousch Power and other IPPs, having similar issues, be worked 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." The term of PPA will be extended correspondingly to OFME period; (ii) the capacity payments paid during this period shall be recovered through adjustment against the late payment interest invoices of the company along with the later payment interest at the rate of 50 per cent of the total interest worked out up to 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 output electrical output on account of non-supply of gas/RFO shall be treated as an OFME under PPA. Accordingly, the company would not be entitled to capacity payments during such period and the power purchaser would not be entitled to impose LDs on the company; and (iv) in case of any such eventuality in future it will also be considered as OFME. The sources said Power Purchase Agreements with the IPPs will be amended to settle LDs issue in accordance with the decision of CCoE of June 6, 2017.
After hearing reservations of Cabinet members, the Cabinet decided to refer the matter relating to "approval of the settlement of liquidated damages, submitted by Power Division, to the Economic Coordination Committee of the Cabinet.
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