ISLAMABAD: Korean Company, M/s Mira Power Limited (MPL), sponsor of 102 MW Gulpur power project, has threatened to seek legal remedy at the international forum under the Power Purchase Agreement (PPA) if injustice is done by Nepra on tariff calculations and in allowing indexation in US dollars, well-informed sources in Nepra told Business Recorder.

Korean company also cited its letter of June 14, 2024 delivered to Power Division on July 1, 2024, in which the company requested a meeting with Secretary Power to discuss the expected issues with Nepra’s determination of the COD Tariff Adjustment and seek an amicable resolution of these issues. However, the meeting could not take place.

Under the terms of the Power Purchase Agreement (PPA) of September 3, 2015 between the Company and the Central Power Purchasing Agency (CPPA-G), the company is entitled to EPC-stage tariff, which was approved by Nepra on October 28, 2015, to be adjusted at Commercial Operations Date in accordance with an approved and agreed mechanism in Schedule 1 to the PPA (COD tariff).

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For avoidance of doubt, the company does not accept that the calculation of the COD Tariff, in accordance with Schedule 1 to the PPA, is a matter for Nepra. The calculation of the COD tariff is a contractual matter.

The company further noted that an arbitral tribunal appointed under a different power purchase agreement relating to another hydropower project in Azad Jammu and Kashmir has recently confirmed this position.

However, as CPPA-G appears to take the position that it requires NEPRA to confirm the calculations of the COD tariff before it can make the contractually agreed tariff payments to the company, the Company has submitted the COD tariff adjustment to remove any obstacle for CPPA-G to make tariff payments to the Company based on the correct COD tariff.

“Any determination of the COD tariff adjustment must be in accordance with the applicable contractual framework and regulatory mandates, and the tariff adjustments shall accurately reflect the true costs incurred by the Company,” the company’s CEO said, adding that the company is concerned that Nepra’s approach to the COD tariff adjustment may not align with the expressed contractual requirements set out in Schedule 1 to the PPA, Nepra’s own determination of the EPC-stage tariff, and/or the Power Generation Policy of2002 under which the Gulpur Power Project has been developed.

The Company maintained that a significant adjustment to the EPC-stage tariff relates to the EPC onshore cost, which Nepra approved and the Company incurred in US dollars. However, the Company understands that Nepra may take the position that these costs must be calculated in PKR since they were incurred in Pakistan, with no allowance for foreign exchange indexation. This stance is not only inconsistent with NEPRA’s own determination for the EPC-stage tariff which was then reflected in Schedule 1 to the PPA, but also with amendment 12(i) of May 23, 2007 to the Power Generation Policy 2002, which expressly permits EPC contracts to be denominated in USD and states that the risk of exchange rate fluctuations should not be imposed on the project company.

After explaining the background, Korean Company has sought intervention of Power Division to take appropriate measures to ensure that contractual commitments outlined in the PPA are upheld.

The CEO of the company further stated that he is confident that with Power Division’s assistance, an amicable resolution of this matter can be reached. However, if the Company is denied payment of the correct COD tariff, as calculated in accordance with Schedule 1 to the PPA, it will consider the available options to protect its contractual rights, including to commence arbitration proceedings under the PPA.

South Korean Embassy, in a letter to Chairman NEPRA has said that MIRA is facing significant concerns regarding the adjustment of the Commercial Operations Date (COD) tariff for its 102 MW hydropower project in Gulpur, Azad Jammu and Kashmir.

The primary concern is that MIRA desires NEPRA to adhere to the agreed terms in the Power Purchase Agreement of 2015 when setting the COD tariff adjustment. According to South Korean Embassy, MIRA has insisted that the EPC onshore costs, initially approved and incurred in US dollars should not be recalculated in Pakistani Rupees without allowing foreign exchange indexation.

Furthermore, MIRA has emphasized that the COD tariff should be calculated according to the contractual framework and accurately reflect the true costs incurred.

Copyright Business Recorder, 2024