ISLAMABAD: The Federal Government and Independent Power Producers (IPPs) have reportedly agreed to sign Master Agreements, to be annexed to the Power Purchase Agreements (PPAs) instead of making massive amendments in the PPAs, well informed sources told Business Recorder.

Both sides have already given their consent to payment of agreed amounts in three instalments within one year i.e. by December 2021. This mechanism was presented at a meeting presided over by Finance Minister, Dr Abdul Hafeez Shaikh/ Chairman Implementation Committee which was also attended by the Minister for Power Omar Ayub Khan.

The sources said, following the meeting with Dr Abdul Hafeez Shaikh, the government's technical team headed by Babar Yaqoob Fateh Muhammad conveyed to the IPPs that only 0.7 percent over and above treasury bills will be part of the PPAs and remaining amendments will be made in the Master Agreements, which will be made part of the PPAs.

The Government and IPPs will jointly approach National Electric Power Regulatory Authority (Nepra) for review in tariffs and approval of revised agreements within a couple of weeks. "As the Master Agreements are signed, the parties will file petitions to Nepra within five days for review of IPPs tariffs and approvals of revised pacts," sources said, adding that as this is done, the government will announce it formally and IPPs will reciprocate in the form of concessions to the government.

IPPs, sources said, have already agreed on conceptual terms and now legal minds are converting them in legal language. The government is also finalising mechanism for arrangement of funds including share of each Ministry/ department and mode of payment. "The government wants to first correct its own issues prior to signing the Master Agreements," the sources continued. In August 2020, IPPs and Government signed Memorandum of Understanding (MoUs) which were to be converted into agreements within six months. According to the payment mechanism, presented by the government, agreed amounts of IPPs will be cleared in three instalments of 33 percent each and each instalment will be split into two components, i.e. cash and tradable instruments with 0.7 percent addition. Accordingly, 1/3 of the first instalment will be paid in cash and the remaining two-thirds (2/3) in tradable instruments, with the same mechanism being replicated for the second and third instalments. The government maintains that this mechanism is the most feasible to the GoP due to fiscal constraints imposed upon them under the IMF programme.

The sources said, depending upon the speed with which the contracts are negotiated, the disbursements could take place in January, June and December whereas the tradable instrument would be a treasury bond (and accordingly for 10 years) and is to be viewed as “cash equivalent”. Both cash and the tradable instrument shall be available as and when disbursed and accordingly, the cash portion should not be viewed as a small amount.

Government has conveyed to the IPPs that if the agreements are signed in January, first instalment will be paid the same month.

The main concern of the IPPs was who will pay the discount if the instruments - with a rate equal to T-Bills with 0.7 percent addition, are sold at lower rates.

The government has shared drafts of agreements with the IPPs established under Power Generation Policies 1994 and 2002.

An insider told Business Recorder Finance Minister has taken IMF's approval to improve first instalment from 33 percent to 40 percent of total amount and remaining two instalments will be 30 percent and 30 percent each.

However, the government has backed away from one of its pledges incorporated in the MoUs and approved by the cabinet according to which the dollar rate was to be frozen at Rs168. "The government is now proposing to the IPPs established under 1994 Policy that the dollar rupee parity would be at the prevalent rate instead of Rs168 agreed in the MoUs," he continued. IPPs are being asked to agree to this proposal for the time being with the rate frozen when the rupee dollar parity reaches Rs168. The government's calculations were made on the basis of Rs168 per dollar.

"IPP, had taken their sponsors on board at Rs168 per dollar who will now have to be told that their profit/revenue estimates are going to be lower,” he maintained.

The issue of IPPs established under Power Generation Policy 2002 is still alive as government wants Nepra to strike a deal on excess profits with them.

Unconfirmed reports suggest that sponsors of solar projects have signed agreements with the Government whereas bagasse, and IPPs established under 1997 policy and 2002 policy will sign agreements in the next two or three days.

Copyright Business Recorder, 2021