Govt body starts talks with IPPs

MUSHTAQ GHUMMAN

ISLAMABAD: The newly-appointed committee headed by Chairman Federal Land Commission, Babar Yaqoob Fateh Muhammad, has started marathon deliberations with the Independent Power Producers (IPPs), hinting at shifting from take or pay (ToP) to take and pay (TaP) contract terms and indexation from USD to PKR, well-informed sources told Business Recorder. The committee which also comprises a Joint Secretary from Power Division, Muhammad Ali, former Chairman, Securities and Exchange Commission of Pakistan and Barrister Qasim Wadood, has also asked the IPPs to return the “excess” payments they purportedly received as claimed by the report of a committee headed by Muhammad Ali. The nine-member committee headed by Muhammad Ali, in its report, which had ostensibly been withdrawn after pressure from some international lenders, has recommended the government to shift from US dollar to PKR based tariff and do away with take or pay arrangements with the IPPs.

According to the Terms of Reference (ToRs), the new committee is engaged with various IPPs to negotiate on the amounts, rationale and mechanism of “excess” payments of the past under specific heads as well as due to systemic oversights highlighted in the report, reduction of interest rate and payments on debt and other components, extension of debt tenor etc, and agree on changes required to ensure avoidance of these payments in future. “Excess” payments are not restricted which was not highlighted in the report and the Negotiation Committee may look into the “excess” payments which may not have been covered in the report.

The committee is negotiating on a claw back mechanism for sharing efficiency and other gains and savings in future between power purchaser and IPPs. These may be subject to verification of various cost, implementation of cost accounting order, heat rate verification of various cost, implementation of cost accounting order, heat rate fests, audit, etc. as the Negotiation Committee deems it fit.

The committee is also asking IPPs to change their rate and formula or their profits, return on investment and Internal Rate of Return (IRR) from USD to PKR basis without any USD indexation. The committee has also conveyed to the IPPs with respect to modalities and mechanisms for shifting from take or pay contract terms to take and pay contract terms.

The committee can negotiate with IPPs on any other terms, conditions, payments, etc, besides those already conveyed in writing to the IPPs.

The committee is authorised to coordinate with Power Division, Nepra, CPPA-G, PHL, PPIB, AEDB, etc for any actions that may be required from these organisations towards achieving the objectives of ToRs.

The committee will document the understanding reached with IPPs towards achieving the objectives of these ToRs. The committee will recommend IPPs which should be considered either for retirement for detailed forensic audit.

The sources said, IPPs are being asked to return the excess amounts they received which, according to the nine-member committee’s inquiry report, was over Rs 100 billion.

The nine members committee had submitted the following recommendations: (i) review of Interest During Construction (IDC) and other setup costs of coal IPPs to recalculate RoE; (ii) review plant capacity benchmarks in renewable IPPs for a more prudent tariff sharing method and recover excess payments made; (iii) introduction of reasonable claw back mechanism in all tariffs (where required); (iv) verification of fuel inventories of thermal IPPs and adjust outstanding payments against actual levels; (v) recovery of excess profits made by generation beyond capacity benchmarks from renewable IPPs in three months; and (vi) consideration of retirement of Gencos by generation as well IPPs established under the 1994 and 2002 Policy.

According to the report, next year’s capacity purchase payment projection by CPPA-G is in excess of Rs 900 billion. With the current excess capacity of 30 per cent in the country, moving to TaP and accounting for demand in growth, the country can easily save at least Rs 150-200 billion which can lead to further reduction of Re 1/kWh in power tariff.

“The new committee has called several IPPs and conveyed to them the crux of the TORs of the committee and future line of action,” the sources said.

The IPPs representatives who are attending the meetings, carefully listen to the committee’s viewpoint/observations and convey to them that they have heard the committee and will revert back in writing after taking all their stakeholders on board.

“We will share our accounts details and other documents with the committee for probe. If the power companies have earned over and above the contracts, the committee can ask for return of that amount but in case of loss, the committee will be asked for compensation,” one of the representatives of IPPs reportedly said.

The IPPs, sources said, are ready to revise the agreements as a goodwill gesture and for a win win situation for both sides but will not be ready to bow before any pressure as they have sovereign guarantees.