Nepra not sure whether IPPs secured illegal gains

ISLAMABAD: National Electric Power Regulatory Authority (Nepra) is said to be not sure that Independent Power Producers (IPPs) of the 2002 Policy secured illegal gains, well-informed sources told Business Recorder.

On July 15, 2021, the Power Division, in its summary explained that Cabinet Committee on Energy (CCoE) had constituted an Implementation Committee on September 24, 2020 for implementation of the MoUs signed with the IPPs.

The CCoE and ECC considered the report by Implementation Committee and approved the payment mechanism and agreements with IPPs in meetings held on February 8, 2021 which was ratified by the Cabinet on 9 February, 2021. On a summary submitted by Power Division on 5 May, 2021, ECC decided and Federal Cabinet ratified the following decision of the ECC on 18 May, 2021: payments to all IPPs (under Pre-1994, 1994 and 2006 Power Policy) may be processed according to the signed agreements except the IPPs under the Power Policy 2002 till the conclusion of the NAB investigation.

The matter of the alleged saving in the tariff component of 12 IPPs of 2002 Policy is already under investigation by NAB which may be requested to examine and validate the process of negotiations and signing of agreements, including Arbitration Submission Agreement. The NAB may also inform if it has any objection to the signing of these agreements and making of payments to the IPPs of 2002 Policy. The Power Division, accordingly, conveyed the decision of ECC, as ratified by the Federal Cabinet to NAB on May 25, 2021. In response to the letter by Power Division, NAB declined to examine or validate the process, or to inform if it has any objection to these agreements or making payments to IPPs under these agreements through their letter dated June, 08, 2021.  

In view of the previous decisions by ECC and Federal Cabinet and response from NAB, the Power Division submitted a summary for the consideration of ECC with a proposal that the payments to IPPs (under the Power Policy 2002) may continue to be withheld, and the process of signing Arbitration Submission Agreement with these IPPs and notification of the revised tariffs as determined by Nepra may remain suspended till NAB investigations are concluded. However, the agenda was deferred.

NAB has now stated that “illegal” gain of Rs 8.36 billion has been established against M/s Nishat Chunian Power Ltd, due to determination of tariff on the higher side. NAB further intimated that “Ministry of Energy, if so desired, may proceed subject to all legal exceptions to the revised agreements duly vetted by the Ministry of Law and Justice, with the IPPs under the Power Policy 2002, after securing the amount of loss caused to the State, as established during the stated NAB investigation in the best interest of the State”. 

The Power Division argued that the “illegal” gain of Rs 8.36 billion established against Nishat Chunian by NAB is almost the amount determined by the negotiation committee. Similar amounts were also determined against other IPPs of 2002 Policy. The amounts determined as excess profits by the Committee for Power Sector Audit, Circular Debt Resolution & Future Roadmap were slightly different.  NAB in its letter is talking about the agreements with all the IPPs of the 2002 Policy.

The Power Division further argues that agreements with the 2002 Policy IPPs, finalized by the Implementation Committee, do not provide for deduction of an “illegal” gain made by an IPP and the agreements already inked will need to be reviewed. In order to review the agreements, the same process needs to followed, which was followed for earlier approval i.e. negotiation by the Implementation Committee with the IPPs and approval by CCoE before referring the matter to ECC of the Cabinet.

After explaining the history, Power Division has submitted the following for consideration of CCoE: (i) Implementation Committee constituted by CCoE on September 24, 2020 may be assigned the responsibility of renegotiating the Master Agreements with IPPs established under the 2002 Policy to cater to the NAB’s letter of June 8, 2021; and (ii) the outcomes of the re-negotiations by the Implementation Committee may be submitted for consideration and approval by CCoE.

During the ensuing discussion the Power Division informed the CCoE about contents of the NAB letter and stated that in this regard the following aspects of the case were to be deliberated upon: (i) Can the unilateral securing of “illegal gain” trigger proceedings before London Court of International Arbitration (LCIA) under the contractual arrangement? (ii) What is the appropriate legal forum to establish and recover illegal gain? (iii) Does the same principle of ‘securing’ apply to other 11 IPPs under the 2002 Policy? And (iv) whether the consent of IPPs is required for ‘securing’.

Nepra stated that it was quite premature to assume that IPPs under the 2002 Policy secured illegal gains as it was yet to be determined by Nepra. The forum was informed that Nepra had not yet determined this aspect viz-a-viz the tariff applicable to 2002 Policy as the matter was subjudice due to stay granted by the Islamabad High Court.

Minister for Finance & Revenue Shaukat Tarin observed that the letter from NAB on the issue was clear. Therefore, further action should be taken accordingly. He suggested that various options could be considered for payment to IPPs after deducting the disputed amounts, as may be determined.

The CCoE was informed by the Power Division that since there was no provision in the MoUs signed with IPPs for such deductions, therefore, the process of consultation/negotiation has been proposed in the summary in order to avoid any chances of litigation. Furthermore, the CCoE observed that representation of the Law & Justice Division in the Implementation Committee, already constituted by the CCoE, was necessary to cater to the legal aspects of the issue.

The CCoE approved the proposal of Power Division with the direction that Secretary Law and Justice should also be included in the Implementation Committee as member.-MUSHTAQ GHUMMAN