ISLAMABAD: Independent Electricity Producers (IPPs) have abandoned a government-offered payment plan to partially settle their dues, requiring at least 50 percent upfront cash before signing formal agreements on tariff discounts.
An implementation committee headed by Finance Minister Dr. Abdul Hafeez Shaikh had offered the IPPs last week to pay approximately 450 billion rupees in three equal (one-third of the total) installments through a combination of cash and negotiable bonds over the next month, June and December 2021. Each installment should be one third (around 50 billion rupees) in cash and two thirds (around 100 billion rupees) in bonds.
Sources told in the IPPs dusk that the payment plan offered by the government team was a priori unacceptable. They told the Implementation Committee that the government appears to be “renegotiating” the terms of the MoUs signed last August with discounts worth around $ 836 billion. “In a way, this was the reopening of MoUs,” a source said.
Request a prepayment of 50 units before signing any formal discount agreement
The government team was told that the IPPs were facing an acute liquidity crisis and that their legitimate outstanding fees were approximately Rs 450 billion, which the government pledged to prepay in August before the IPPs agreed to “unprecedented” tariff discounts rolled into one Major to grant withdrawal from their sovereignty treaties. “The government should follow its side of the deal in its true wording and spirit,” said the IPPs.
They called for at least 50 percent of the Rs450 billion fees to be paid in cash upfront to alleviate their liquidity problems. Given the government’s requests for tight fiscal space to meet IMF requirements, the next two tranches in June and later on a combination of cash and bonds could be 30 and 20 percent, respectively.
The sources said there was no dead end in the talks. “The talks actually started only last week to translate the MoUs into formal contracts and would go on for weeks,” they said.
The government also needs to make some decisions about consumer electricity tariff to revitalize the IMF program and improve electricity distribution companies (discos) revenues to meet their regular monthly payment schedule, an official said.
A senior government official acknowledged that a “counterpayment plan is being considered” emanated from the IPPs under the 2002 electricity policy, while talks with the IPPs under the 1994 policy and with Hubco were still in the pipeline.
Sources said a group of IPPs led by the Mansha Group were still reluctant to agree on the role of the National Electric Power Regulatory Authority (Nepra) in settling “overpayments” they claimed in the past, as reported by a previous committee of inquiry alleged led by former SECP chairman Muhammad Ali.
This group of five to six IPPs have taken the position that they have the legal framework for arbitration to settle any amount in dispute and have failed to agree to return to Nepra. The amount involved in this “surplus payment category” is approximately 52 billion rupees and has been challenged by the IPPs in court.
The IPPs also have certain objections to the government-shared language of the formal contracts to convert the MoUs into amendments / additions to the electricity purchase contracts. The government side has also asked the IPPs to propose any changes they want to make in the draft agreements.
The sources said the implementation committee lost a lot of time translating the MoUs into formal agreements and went full throttle after about three months.
The sponsors of wind power projects also complained that under the MoUs in August, the government had undertaken to give lenders concessions on surcharges, insurance, etc. contracts. The MoUs are due to expire on February 12th.
The MoUs, which were signed by four dozen IPPs, including heat, wind, solar and bagasse, required advance payments (approximately within six months. IPP claims against government agencies will be around 1.15 trillion rupees in June 2020 estimated.
On October 10th, Dr. Hafeez Shaikh replaced Energy Minister Omar Ayub Khan as Head of the Implementation Committee, while Tabish Gohar replaced Shahzad Qasim on the Committee. All other members of the committee remained unchanged, including Babar Yaqoob Fateh Muhammad who led the negotiations with the IPPs, the power and finance ministers, Barrister Qasim Wadud and the executive director of the Central Power Purchasing Agency Guarantee Ltd.
Posted in Dawn, January 6, 2021