ISLAMABAD: Indepe-ndent Power Producers (IPPs) have urged the federal government to make payment of the first instalment of 40 percent immediately and any failure in this regard will result in default of the power purchaser under the agreement.
This clear message has been conveyed by the IPPs to the government, a day before the meeting of Economic Coordination Committee (ECC) of the Cabinet, the first to be presided over by the newly-appointed Finance Minister, Shaukat Tarin.
Power Division, in its summary has submitted the following recommendations: (i) Federal Board of Revenue (FBR) may review the matter of taxation of contractors at the rate of 4% of the relevant payment and determine whether the allegations of the report by the Negotiations Committee are based on facts and if any recoveries are due to be made from the relevant IPPs. Such recoveries may be made from future payables of the relevant IPPs after FBR determination; (ii) payments, to all IPPs under the Power Policy 2002, which have signed agreements pursuant to MoUs may be withheld till the conclusion of NAB investigation; (iii) suspend the process of signing ASA with IPPs under the 2002 Power Policy, and notification of their revised tariff as determined by Nepra, till the conclusion of NAB investigation; (iv) payments to all other IPPs may proceed according to the signed agreements; (v) to take any other action ancillary thereto which may assist NAB investigation; and (vi) supplementary grant equivalent to Rs 89.86 billion for the payment of first installment may be approved and released to the Power Division in accordance with the payment mechanism.
IPPs, however, argue that they reserve all the rights under the agreement, the PPA (as amended) and the applicable law.
The letter states that by way of background, the IPPs had entered into a Power Purchase Agreement (PPA) with the Power Purchaser (CPPA-G), pursuant to which the power purchaser was required to make payments to the IPPs as per the tariff determined by National Electric Power Regulatory Authority (Nepra). Despite being under an obligation to make timely payments to the IPPs under the PPA, the power purchaser has been in “consistent payment defaults” in the past. This also led to multiple disputes between the parties under the PPA, which were resolved by the parties in LCIA arbitrations seated in London. The IPPs have always been successful in those proceedings and arbitral awards were issued in its favour. The power purchaser remains in default with respect to its payment obligations arising out of arbitral awards as well as other undisputed amounts under the PPA.
According to the letter, instead of fulfilling the promises made to the IPPs, various state agencies initiated unnecessary and unlawful proceedings against a few IPPs, on various grounds. For example, notices have been issued with respect to earning of allegedly excessive profits. All such actions by the state agencies have always been resisted. With respect to these matters, the IPPs have always taken a stance that any such dispute/allegation is to be resolved through LCIA arbitration only in terms of the Implementation Agreement (IA).
In order to resolve the issue of non-payments by the power purchaser along with other matters, at the request of the Government of Pakistan, the IPPs held several rounds of discussions with the GoP, during which the GoP’s position remained as follows: (i) the concerned state institutions have formed a consensus that Pakistan’s economic growth and sustainability are dependent on the viability of the power sector; (ii) addressing the root causes was a necessity to effectively curb the ever increasing circular debt; (iii) all segments of the power sector need reform and such transformation will be carried out transparently and in a non-discriminatory manner; (iv) no action will be taken to adversely affect private sector investment; and (v) the GoP understands that huge undisputed amounts remain outstanding to the IPPs, which the GoP acknowledges and agrees to pay as per the agreed mechanism.
According to sources, IPPs maintain that discussions culminated into, inter alia, execution of the agreement, pursuant to which the IPPs agreed to alter the existing contractual rights at the request of the GoP. Through the agreement, the IPPs agreed in “good faith” and “supreme national interest” to: (i) share future savings with CPPA-G; and (ii) a reduction in return on equity component of the tariff. In this regard, Recital B of the agreement states that: “the IPP has, at the request of the Government of Pakistan, in the larger national interest, voluntarily agreed to alter their contractual rights for the sustainability of the power sector.”
As evident from the chronology of events, IPPs claim that whatever arrangement they agreed to, was at the request of the GoP and in “national interest”. The IPPs were neither obligated to agree to the same under the agreements nor under any applicable law. In fact, the IPPs could have opted to not to cooperate with the GoP and exercise the rights available under law and binding agreements. However, in the “larger national interest”, it did not do any such thing.
IPPs maintain that in relation to the payment, the only step that has been taken as per the terms of the agreement is filing the tariff adjustment application before Nepra, reflecting the tariff adjustment agreed between CPPA-G and the IPPs subject to the terms of the overall arrangement. Nothing else has been done as per the repeated commitments including those agreed under the binding instruments.
Nepra issued the tariff determination on April 02, 2021 and it was expected (keeping in view the agreements and discussions/understanding between the parties) that all formalities will be completed in a swift manner and payment of the first installment will be made immediately. However, it has not been made till today. This clearly shows that CPPA-G is delaying in performing that part of the bargain, and is opting to remain silent on the issue of payment of undisputed amounts, which forms an integral part of the parties’ agreements.
Furthermore, the IPPs not only agreed to give substantial concessions but also consented to settle the issue of the alleged ‘excess profits’ through ad hoc arbitration. At the time of entering into the agreement, both the State institutions and the IPPs, considered this to be a viable solution with a view to moving forward instead of letting any other institution “mishandle” this crucial matter in a manner perceived by the private sector to be biased. In this regard, it was specifically agreed in the agreement that: “the resolution of the dispute as to alleged savings in tariff components as, inter alia, alleged in the report of March 16, 2020, titled ‘Government’s Committee for Power Sector Audit, Circular Debt Resolution and Future Roadmap’’ notified by the Government of Pakistan on August 7 2019, allegedly in violation of applicable GoP policies, tariff determined by Nepra and the relevant Project Agreements, will be done through arbitration in terms of the Arbitration Submission Agreement.”
IPPs further state that flexibility both on form and substance of the deal was duly acknowledged by the State institutions. There were many aspects of the agreement that the IPPs wanted to structure differently but they consented to what was being insisted by the State institutions solely on the promise and the representation that the State of Pakistan was seeking to restart the relationship with the private sector afresh with a clean slate. In spite of the GoP agreeing during negotiations, the IPPs feel that there is reluctance on the GoP’s part in fulfilling its obligations, which seems surprising as the parties had extensive discussions and it was only after assurances that the IPPs agreed to enter into the present arrangement.
IPPs have requested that the GoP/State agencies/institution fulfil their part of the bargain and ensure that the matter is proceeded with without hurdles or unnecessary delays.
The ECC, sources said, will also discuss the implications of letters sent by the IPPs to the government agitating for not fulfilling commitments.
Copyright Business Recorder, 2021