MUSHTAQ GHUMMAN
ISLAMABAD: National Accountability Bureau (NAB) has "cleared" deals between Independent Power Producers (IPPs) and Government of Pakistan (GoP) after a detailed meeting with the Government's Negotiation Committee.
On Thursday, IPPs were surprised at the "sudden move" by NAB in their recently struck deals with the government, fearing that the entire process will be jeopardized with the investigation.
A senior official of Power Division confirmed that the NAB wrote a letter to Secretary Power Division, seeking the record of agreements reached with the 47 IPPs.
The sources said that NAB Lahore wrote a letter to Secretary Power, Ali Raza Bhutta, on February 10 and sought details till February 18, 2021, which put “unnecessary” pressure on bureaucracy, which took up the matter at the highest level.
Some of the IPPs which struck deals contended that such a move may have been initiated by “some within the government”.
However, on Thursday, NAB cleared the dust on deals by issuing a press release which states the Government Negotiation Team has briefed the Chairman NAB, former Justice Javed Iqbal, at NAB headquarters about the revised contracts with 47 IPPs and concessions extracted through the recent deal with IPPs. The team also briefed him about an arbitration agreement clause added to these contracts which will determine alleged excess savings of Rs. 55 billion with IPPs. It is unclear if the officials of ISI who were members of Negotiation Team were also present in the meeting.
NAB, in its press release, claimed that the “idea” of negotiation was floated by NAB it in view of some of the weaknesses found in the IPPs agreements made by previous governments. “The strategy of NAB proved advantageous and beneficial which resultantly brought savings of billions of rupees to the Government of Pakistan”.
NAB has “reiterated” its firm commitment to resolving the issue as NAB always gives top priority to the development and prosperity of the country in the national interest which remains ever supreme for NAB.
Chairman NAB appreciated the efforts of Negotiation Team and the whole process which would lead to a projected Rs. 836 billion saving from remaining terms of these IPPs. NAB vehemently denied reports aired in few media circles that NAB is finding wrongdoing in these revised IPPs contracts.
On February 9, 2021, SAPM on Power, Tabish Gauhar briefed the Cabinet that in August, 2019, a Power Sector Committee was constituted with the mandate to look into the sector's issues and reforms. A detailed report by the Committee was submitted in March, 2020. In June, 2020, a Negotiation Committee was formed and Memoranda of Understanding (MoUs) were signed with 47 Independent Power Producers (IPPs) on revised contract terms. Subsequently, in September, 2020, an Implementation Committee was constituted to convert MoUs into Agreements and in November, 2020, the Federal Cabinet ratified the approval of MoUs.
He further stated that while finalizing the agreements, all clauses of MoUs were converted into Agreements in letter and spirit in favour of the Government of Pakistan (GoP). The CPPA, AEDB and PPIB Boards had approved signing and executing Master Agreements and amendments to PPA/EPA and IA. The payment mechanism for payables agreed was 1/3rd cash and 2/3rd bonds. An estimated Rs. 836 billion was saved to Government of Pakistan due to signing of these Agreements.
The features of the initialed Agreements between GoP and 1994 Policy IPPs, Hubco and KAPCO (8 IPPs = Approx. 4,046 MW) include 11% reduction in capacity payments and variable operations & maintenance costs, 50% of reduced capacity payments based on PKR (instead of USD), interest on interest waived against payment of present and future invoices in the order of due date and arbitration/outstanding claims between IPPs and GoP to be amicably settled.
The features of initialed Agreements between GoP and 2002 Policy IPPs (12 IPPs = Approx. 2,355 MW) were rupee-based return instead of USD based for local investor (17% p.a. in PKR fixed at Rs. 148/USD without any future USD linkage) while return reduced to 12% USD instead of 15% USD for foreign investors; GoP to share in all future savings of fuel and O&M costs; and, Efficiency Audit through Heat Rates Tests of IPPs to be conducted and interest rate on payments reduced from KIBOR + 4.5% to KIBOR + 2% for first 60 days.
The features of initialed agreements between GoP and 2006 Policy Wind and Solar IPPs (18 IPPs = approx. 815 MW) included return reduced to 13% USD instead of 17%USD; O&M costs reduced by 20- 25% for Wind and 15% for Solar; and, insurance costs reduced to Actual (with a ceiling of 0.7% of EPC for Wind and 0.5% for Solar). It also resolved curtailment issues of Wind IPPs by 50% reduction in generation cost above benchmark and curtailment up to 1.25% per month (15% p.a.). It included waiver of interest on interest & interest rate on payments reduced from KIBOR + 4.5% to KIBOR + 2% for first 60 days.
The features of initialed Agreements of Bagasse-based IPPs (8 IPPs = Approx. 204 MW) entail return reduced to 12% USD instead of 17% USD for next 5 years. Thereafter, fixed in PKR at 17% @ Rs. 168/USD without any USD linkage (approx. 20 remaining years). The Operation and Maintenance cost reduced by 10% and insurance costs reduced to 0.7% of EPC. The waiver of interest on interest & Interest rate on payments reduced from KIBOR + 4.5% to KIBOR + 2% for first 60 days.
The SAPM on Power further noted that legal disputes were to be settled out of court. With the period being treated as 'Force Majeure' event, Court/Arbitration cases in lieu of non-availability of fuel due to payment delays were settled with KAPCO, 2x IPPs under the 1994 Power Policy and 9x IPPs under the 2002 Power Policy. This settlement is said to have accrued a Rs. 32.38 billion benefit to consumers.
Further, the two variations favorable for GoP agreed upon were favorable exchange rate and resolution of past excess payments to 2002 Policy IPPs. The details of which were as follows: (i) favourable exchange rate - USD/PKR rate had changed from 168/USD on MoU signing date to 160/USD. Due to this change, agreeing on MoU signing rate would lead to losses for GoP. The objective is to avoid loss for GoP and protect it against PKR depreciation beyond 168/USD agreement with the 1994 policy IPPs. The date of agreement signing (approx. 160/USD) to be used as floor. The MoU signing rate (168/USD) will be fixed for the remaining term only when USD reaches 168/USD agreement with the 2002 policy IPPs. For local investors, existing arrangement (150/0 @ 160/USD and fluctuations without any floor) will continue. The MoU signing rate of 17% return in PKR @ 148/USD (which is equal to 15% of 168) will be fixed for the remaining term only when USD soars to 168/USD.
Resolution of Past Excess Payments to the 2002 Policy IPPs: (i) originally Nepra was to determine the issue. There was risk of international arbitration and local litigation as well. The final agreement with IPPs says that the issue to be decided through a 3-member Arbitration Panel. Two members will be retired Supreme Court judges who will jointly decide the third member. The decision of Arbitration Panel will be final and cannot be challenged.
The payment mechanism entailed that the GoP was to clear outstanding payables of Rs. 403 billion to 46 IPPs in 2 instalments. The first instalment of Rs. 161 billion, i.e., 40% to consist of 1/3rd cash, 1/3rd 5-years Sukuk and 1/3rd 10-years PIBs. The payment to the 2002 policy IPPs would be after determination of revised tariff by Nepra.
The payment to the 1994 policy IPPs would be 30 business days after signing of agreements. After 6 months of first instalment, second instalment of Rs. 242 billion i.e., 60%, to consist of 1/3rd cash, 1/3rd 10-years Sukuk and 1/3rd 10- years PIBs and IPPs to settle undisputed outstanding claims of approx. Rs. 70 billion GoP owned fuel suppliers.
The Advisor to the PM on Commerce Razzak Dawood recused himself from discussions on the issue of payments mechanism to IPPs due to conflict of interest.
