KE likely to be eyeball to eyeball with PD

ISLAMABAD: The top management of K-Electric (KE) is likely to come eyeball to eyeball with the top brass of Power Division at a meeting of the Economic Coordination Committee (ECC) of the Cabinet Wednesday (today) due to their disagreement on the new draft Power Purchase Agreement Agency (PPAA), well-informed sources told Business Recorder.

Sharing details, the sources said Cabinet Committee on Energy (CCoE) approved additional supply of 1300MW from the national grid to KE on June 19, 2020. The CCoE on August 27, 2020 further reviewed different aspects of additional supply of 1300MW to K-Electric and took the following decisions: (i) KE, Central Power Purchase Agency (CPPA) and National Transmission & Dispatch Company (NTDC) will initial the tripartite Power Purchase Agreement (PPA) for additional power supply of 350 to 450MW within one week while keeping the financial settlement clauses in square brackets in CPPA-Gs proposed-language; and (ii) Finance Division and Power Division to expedite action for finalization of clauses related to financial settlement and submission to the ECC.

Multiple meetings were held between KE and CPPA to finalize tripartite PPA for additional supply to the former. The disagreement on various clauses of the proposed PPA, however, could not be resolved.

K-Electric maintains that the additional capacity to be provided under the agreement may be increased from 1300MW to 1400MW. Power Division has supported the proposal of KE. KE's top brass will participate in the ECC meeting through a video link due to Covid-19.

CCoE in its decision of August 27, 2020 directed that “KE and NTDC should start taking necessary actions for transmission arrangements for supply of an additional 350-450 MW immediately to ensure availability of power supply to Karachi in time for meeting its power demand during peak summer season starting from March 2021”.

Pursuant to the CCoE decision, KE is drawing an additional 350MW from the national grid in addition to 650MW to meet the emergent demand during the month of Ramazan.

The circular debt management plan approved by cabinet assumes that the agreements and payment issues with KE would be resolved to contain the impact of KE nonpayment on the circular debt.

K-Electric has agreed in principle to be treated on the same principles as applied to the ten Discos. The primary rationale for this is that no other provision exists under the existing Nepra Rules and Regulations for withdrawal of electricity from the national grid. While, KE has agreed to be ranked at par with ten Discos, there are still a few areas of disagreement which, according to Power Division, will have an adverse impact on circular debt.

 The confronting issues are as follows: (i) KE desires the payments to CPPA-G be adjusted against the subsidies to be provided by the GoP which is not supported by Power Division; (ii) K-Electric agrees to provide a SBLC (standby letter of credit) as a guarantee against payment. Power Division, to the contrary, is insisting on SBLC backed by an escrow arrangement for replenishment of SBLC upon encashment. Power Division also argues that KE should provide a pari passu charge on its Master Collection Account (MCA) to ensure payment against the power purchase; (iii) KE wants to shift towards Maximum Demand Indicator (MDI) recorded on co-incidental basis. However, this cannot be supported as entire system is being operated on non-coincidental basis; and (iv) KE insists that the power provided to it may be made available as on ‘base-load’/unwavering basis whereas CPPA-G argues that the KE is to be treated at par with the rest of the country on ‘firm’ and ‘pro-rata’ basis, whereas, if there is any shortfall of available power in NTDC system, K-Electric shall have to share it under N-1contingency.

Nepra has, in principle, supported the supply of additional power to meet KE's electricity demand. However, in view of the divergent positions of CPPA-G and KE on the main issues, it has proposed the following for consideration during further deliberations: (i) KE was required to revise its plans for own additional generation and advised to draw power from the national grid to take advantage of surplus capacity to be inducted into NTDC's system. Therefore it is critical that consumers of KE do not suffer due to unreliable power supply from the national grid. Nepra has recommended that clear definitions and statements be included in the tri-partite agreement to avoid disputes among the parties; (ii) the draft PPA (CPPA-G version) does not cover NTDC's obligations for its performance and it is important that relevant sections to address NTDC's relationship with KE and with CPPA-G be included; (iii) Connection Agreement between KE and NTDC would be additional to the tripartite agreement; and (iv) in order to have a workable mechanism 'initialed' PPA by parties may be submitted to Nepra to make additional observations.

Power Division, in its summary, has requested the ECC to deliberate the outstanding areas of disagreement and approve following proposals: (i) non-adjustment of subsidies against transfer price; (ii) enhancement of the capacity to 1400MW on firm and pro-rata basis; (iii) SBLC backed with escrow arrangement for replenishment of SBLC upon encashment or grant of access by KE to its MCA on pari passu basis with its lenders; (iv) MDI recorded on non-coincidental basis till the entire system is established on co-incidental basis; (v) KE to be treated at par with the other Discos and it shall share shortfall in power, if any, with the rest of the country under N-1 contingency; and (vi) draw of additional 350-450MW by KE from NTDC may be allowed till May 30, 2021and formal PPAA is signed on the basis of approved terms and conditions.—MUSHTAQ GHUMMAN