ISLAMABAD: Ministry of Finance is likely to pay the first instalment of Rs90 billion to 35 Independent Power Producers (IPPs) including Hubco and Kapco, at the end of the current week, well informed sources told Business Recorder.

According to the proposal approved by the ECC on May 6, 2021 and ratified by the Federal Cabinet in its meeting held on May 18, 2021, the government has to pay 40 percent of the agreed amount as a first instalment to 35 IPPs.

The sources said, minutes of the Federal Cabinet have been received by the Ministry of Energy (Power Division) and Ministry of Finance and paper work is being completed to pay the due amount to 35 IPPs.

The representatives of "cleared" IPPs and ISI which played a key role in review of agreements and reduction in profits of IPPs are urging the government to pay the agreed amount to the "cleared" IPPs.

The government has to pay Rs403 billion to 47 IPPs by December 2021, of which first instalment of 40 per cent of the agreed amount i.e. Rs180 billion was to be paid to all the IPPs but since payment of 12 IPPs established under 2002 policy has been withheld, now Rs90 billion will be paid to 35 IPPs. As per the agreement, the government had to pay agreed amounts to the IPPs by March 29, 2021.

The first instalment of 40 per cent duly divided in cash, PIBs and Sukuk to be paid to the concerned IPPs shall be adjusted against power sector subsidy claims for FY2019-20 and 2020-21. Similarly, disbursement of remaining 60 per cent will be taken care of in the next financial year.

Power Division has sought Rs90 billion supplementary grant to pay 40 per cent agreed amount to IPPs established under Generation Policy 1994 and Generation Policy pre-1994.

Power Division has proposed that payments to all IPPs under Power Policy 2002, which have signed agreements pursuant to MoUs, may be withheld till the conclusion of NAB investigation and to suspend the process of signing ASA with IPPs under 2002 Power Policy, and notification of their revised tariff as determined by Nepra till the conclusion of National Accountability Bureau (NAB) investigation.

Power Division argues that the matter of alleged savings in the tariff component of IPPs 2002 policy is already under investigation by NAB which may be requested to examine and validate the process of negotiations and signing of agreements including Arbitration Submission Agreement. NAB may also be asked to inform if it has any objection to the signing of these agreements and making payments to the IPPs of 2002 Policy.

Power Division, in its summary stated that Federal Cabinet constituted a Negotiation Committee to negotiate the tariffs and various other matters with IPPs. The Negotiation Committee signed MoUs with IPPs and its report was considered and approved by the Cabinet Committee on Energy (CCoE) and ratified by the Cabinet. Subsequently an Implementation Committee was constituted to convert the MoUs into binding agreements.

The CCoE and ECC considered the report by Implementation Committee, mandated to convert MoUs into binding agreements, and approved the payment mechanism and agreements with IPPs in meetings held on February 8, 2021. Decisions were ratified by the Cabinet on February 9, 2021. Pursuant to the Cabinet's approval, agreements with IPPs have been signed.

The issue of excess profitability of 2002 Power Policy IPPs has been highlighted through the report of Committee for Power Sector audit circular debt resolution & future roadmap. Subsequently, Committee for Negotiations with IPPs notified on June 3, 2020, signed MoUs with the IPPs containing the following clause: "In order to assess if IPPs have made any excess profits, the reconciled numbers between the Committee and the IPPs shall be submitted to Nepra. As a legal body vested with the authority for tariffs, Nepra shall hear and decide this matter in accordance with the 2002 Power policy, tariff determinations and PPAs and provide for a mechanism for recoveries where applicable."

The implementation Committee recommended signing of an Arbitration Submission Agreement (ASA) with the IPPs under Power Policy 2002. The draft ASA has been agreed and initialled between GoP and 12 IPPs under Power Policy 2002.

One of the recommendations of the Negotiation Committee was as following: "the Committee was informed that tariff of IPPs under 1994 Power policy was subject to adjustments based on any change in assumptions specifically with reference to the taxation of contractors at the rate of 4 percent of the relevant payment.”

The sources said IPPs established under 2002 Policy have also approached the concerned "facilitators" requesting them to use their influence on NAB for early issuance of validation letters so that payments are made to them.

Copyright Business Recorder, 2021