ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has directed Federal Board of Revenue (FBR) to resolve four per cent withholding tax (WHT) regarding the 1994 policy of Independent Power Producers (IPPs) within one month, well-informed sources told Business Recorder.
These directions were issued by the ECC on September 30, 2021 during discussion on settlement agreement with TNB Liberty Power Limited on the lines of other IPPs.
Cabinet Committee on Energy (CCoE) and ECC considered the summary by Power Division and approved the payment mechanism, agreements with IPPs and authorized Power Division to continue negotiations with the remaining IPPs, in the meetings held on February 8, 2021; the decision was ratified by the Cabinet on February 9, 2021.
According to sources, pursuant to the decision, negotiations were conducted with M/s TNB Liberty Power Limited whose installed capacity was 470 MW, on the same lines as with other IPPs under the 1994 Power policy.
The company has agreed to the following subject to terms as explained in the Agreements: (i) reduction in capacity payments and variable O&M by 11%; (ii) exchange rate and US CPI indexations shall apply on (a) reduced variable O&M and (b) 50% of the reduced scalable component of the Capacity Purchase Price (CPP); (iii) payment of invoices will be made in order of their respective due dates; (iv) the company agrees to forego/abandon all of its prior claims of interest on late payment interest invoices as further set out in the Settlement Terms of the agreements; and (v) payment mechanism for the payment of payables as on June 30, 2021 of Rs 14.52 billion (for other IPPs balance of November 30, 2020 were used, whereas the balance of TNB Liberty on this date was Rs 15.25 billion), to be made in two instalments - first instalment will be forty percent of total payables and will be paid in cash, and company will authorize its bank to pay 2/3 of the amount to State Bank of Pakistan, for issuance of equivalent of 1/3rd of the amount in Sukuk and 1/3rd in PIB and remaining sixty percent (60%) of the said payable will be paid within six months of the first instalment in the same manner as mentioned in detail payment mechanism.
The Company has agreed, at the request of the Government of Pakistan, in the larger national interest, to amicably settle the final award as per the settlement terms which are provided in the PPA Amendment Agreement.
The sources said, on offsetting of Capacity Purchase Price (CPP), the Company has received payments for the CPP from the Power Purchaser for 91 days, for which the Company agrees to reimburse the CPP and at same time those invoices issued to the Company for CPP of 76 days which remained unpaid by the Power Purchaser will be paid by the Power Purchaser.
Accordingly, it is agreed that the Power Purchaser will pay the Company CPP by offsetting the CPP in respect of 76 days against the amount to be reimbursed by the Company for 91 days. After offsetting of 76 days against 91 days, the Company will reimburse CPP for remaining 15 days during the current Agreement Year (i.e. 20th Agreement Year), by operating the complex for 15 days without charging or receiving the CPPA-G. Outage between the period September 2011 and February 2021 will be classified as OFME extension period of 376 days and the company shall receive: (i) the Capacity Purchase Price; (ii) the Energy Purchase Price for each kWh of Net Electrical Output; and (iii) another payment (including Insurance and Pass-Through Items) that may become due under the PPA.
The ECC has approved payment mechanism for the payment of outstanding payable to TNB Liberty Power Limited as on June 30, 2021 of Rs14.52 billion, to be arranged through supplementary grant.
The sources said, official process to pay 40 per cent of agreed amount as first instalment will commence after minutes of Federal Cabinet are received in Power Division.
Federal Cabinet approved Rs 52.4 billion as first instalment of 11 x IPPs ex 2002 Power Policy IPPs on Sep 28, 2021. These revised contracts have already been approved by ECC, CCoE and Federal Cabinet during the second week of February 21 after a lot of deliberations and efforts. On payment of first installation of outstanding undisputed payables to IPPs as per revised contracts, revised terms will be effective and the Government will save billions of rupees every year especially in increasing rate of dollar and saving from operation and maintenance cost plus reduced interest rate.
Due to late payment, government’s proceedings towards arbitration proceedings is also slow, which is resolution of past excess payments of approximately Rs 56 billion against 2002 Power Policy IPPs. The decision of the Arbitration Panel will be binding for both the parties without going into further appeal in foreign /locals court channels. Moreover, heat rate test will also be conducted after payment to check actual efficiency of these plants which may further reduce the tariff.
In light of the cabinet decision to go for negotiation as an option instead of forensic audit, over 4000 MW reduced tariff has already been implemented since June 2021 after payment to 20 x IPPs.
On payment of first instalment to 2002 Power Policy IPPs, reduced tariff of these IPPs is around over 2000 MW, will also be applicable. These revised contracts have projected savings of approximately Rs. 836 billion for remaining terms of these IPPs.
The sources said payment of wind IPPs of around 600 MW has already been approved; however, for a few IPPs final foreign lenders approval signatures are awaited.—MUSHTAQ GHUMMAN