Body formed to hold talks with IPPs

The government has constituted a six-member technical committee headed by Prime Minister's Special Assistant on Coordination of Marketing and Development of Mineral Resources, Shahzad Syed Qasim to hold formal negotiations with Independent Power Producers (IPPs).

The committee has been formed after first four sessions with the representatives of about 40 IPPs during which the Minister for Power, Omar Ayub, Secretary Power, Irfan Ali and Secretary Finance, acknowledged that they have not seen the report finalised by a nine member committee headed by former Chairman SECP Muhammad Ali who faced very tough time in SECP due to variety of reasons.

The representatives of IPPs, sources said, strongly agitated on the leak of report which was "one-sided version" as IPPs were not invited to share their viewpoint on the presumptions or findings.

"We proposed that the government first conduct forensic audit of all IPPs and then sit with them and if something wrong then send us to jail but don't use arm twisting tactics. Such tactics will hurt investment prospects in the country," said one of the participants from IPPs side.

Sources in PPIB told Business Recorder that pursuant to the Cabinet Committee on Energy (CCoE) decision of April 2, 2020 a committee was constituted under the chairmanship of Minister for Energy, with Special Assistant to the Prime Minister on Coordination of Marketing and Development of Mineral Resources, Secretary Finance Division, Secretary Power Division and Secretary Law & Justice Division as the members to deliberate and recommend viable options after negotiations with IPPs to make the power sector sustainable with a long term perspective.

The sources maintained that in order to carry out the negotiations in an efficient manner, the committee further constituted a technical committee under the Lead of Special Assistant to the Prime Minister on Coordination of Marketing and Development of Mineral Resources comprising of Additional Secretary Power Division, Senior Consultant Research Law Division, Senior Joint Secretary Finance, MD PPIB, MD NTDC, CEO CPPA-G.

The Technical Committee will solicit necessary information/data from the IPPs, discuss various options for tariff reduction with the IPPs and present proposals to the Committee for consideration.

The Terms of Reference (ToRs) of the technical committee are to work with IPPs and if required with their lenders to examine various elements of the tariff and accordingly take following actions: (i) engage with IPPs and if required their lenders to examine the possibility of restructuring/ refinancing the debt or deliberate innovative solution to reduce the payment pressure on power purchaser due to front-end loading of the tariff;(ii) review the O&M costs of the IPPs and find viable mechanism to achieve reasonable reduction; (iii) analyze the impact of foreign currency indexation being provided to local investors and find reasonable mechanism to dispense with the same under the respective tariff/PPAs and explore other options to reduce power purchaser's exposure due to forex fluctuations; (iv) work out modalities of conducting heat rate test of power plants and consider revision of the benchmark efficiency in the respective PPA if actual efficiency found to be better than the contract efficiency; (v) review and analyze Return on Equity (RoE) component of each IPP and recommend a reasonable discount; (vi) to engage with the IPPs to work out a solution for returns / benefits over and above the returns allowed by Nepra / GoP to the power purchaser; (vii) review the terms of Delayed Payment Rate (DPR) and accrued delayed payment charges and recommend reasonable reduction; (viii) evaluate the verified outstanding payments of the IPPs under the PPAs and recommend any adjustment/reduction therein; and (ix) any other option that may extricate power purchaser from financial burden.

According to ToR's IPPs and GoP would mutually share all requisite information and data for purposes of further discussions, deliberations and sharing of information/data will be on "without prejudice" and good faith basis. The committee will duly consider and provide recommendations on other issues of the IPPs.