ISLAMABAD: Negotiations between Karachi Electric (KE) and Government of Pakistan (GoP) on Arbitration Agreement (AA) have reportedly hit an impasse on the ‘equity and fairness’ clause, one of the key conditions of power utility, well-informed sources told Business Recorder.

In May 2021, a senior official of Power Division claimed that the Economic Coordination Committee (ECC) of the Cabinet disapproved "equity and fairness" proposed by KE in the Terms of Reference (ToRs) of Arbitration Agreement on the written advice of Attorney General for Pakistan (AGP). The official also claimed that there was consensus in the ECC on disapproval of equity and fairness clause of ToRs with AGP stating in writing that equity and fairness may have consequences which can go against the government or public sector entities/ organizations.

The official further stated that it is not a simple issue which is why KE is insisting on inclusion of ‘equity and fairness’ clause in ToRs, adding that the Power Division took a position from day one that the country's laws are enough to sort out things.

KE maintains that no one from the government has weighed in on exclusion of 'equity and fairness' clause from the Arbitration Agreement with it.

When contacted, Chief Executive Officer (CEO), KE, Moonis Alvi, confirmed that the government has not contacted KE on ‘equity and fairness’ clause, demanded by it writing.

"Arbitration without equity and fairness clause is not acceptable to KE," he said.

Stakeholders however have reached an agreement on the appointment of former Chief Justice of Pakistan, Tasadduq Hussain Jilani, as Arbitrator on settlement of claims of KE and government organisations/entities against each other.

Talks on new Power Purchase Agreement (PPA) between KE and Central Power Purchasing Agency Guaranteed (CPPA-G) are also not heading towards any success.

The government (CPPA-G) argues that it is ready to guarantee 2000MW electricity from national grid, including electricity from Jamshoro power plant which is expensive.

KE, sources said that on the one hand the government is asking to purchase expensive electricity and supply it to its consumers and on the other implementing Competitive Trading Bilateral Contract Market (CTBCM) from 2023, asking a question how then would the power utility be able to compete with others in the field?

Te government, sources said, has advised KE to seek permission to establish its own generation plant. KE wanted to establish its own coal-fired power plant a couple of years ago but the government shelved it despite the fact that National Electric Power Regulatory Authority (Nepra) had approved its tariff.

CEO KE queried as to how can KE purchase electricity at Rs 17 or Rs 18 per unit and sell it to its consumers.

Another dispute is on payment mechanism of electricity to be supplied to KE from the national grid.

Power Division wants KE to ensure payment against electricity within an agreed time without linking payment of subsidy from Finance Ministry.

The sources said Finance Division has held a meeting with the representatives of banks to find a payment mechanism which remained inconclusive as Finance is not ready to give confirmed deadline of subsidy payment.

CEO KE, however, was of the view that the issue of payment will be resolved when the decision makers will get involved in it.

The sale of 66.40 per cent share of M/s Abraaj Capital to the Chinese company, Shanghai Electric Power (SEP), depends on the resolution of dispute between KE and other public sector entities and issuance of National Security Certificate (NSC).

The government seemed committed to resolving KE issues after a recent visit of Prime Minister to Saudi Arabia through Governor Sindh Imran Ismail. However, with the passage of time, the "understanding" appears to have diminished.

Copyright Business Recorder, 2021