ECC gives final approval to renegotiated pacts with 46 IPPs to clear Rs400b dues

ISLAMABAD-The Economic Coordination Committee (ECC) of the Cabinet has given final approval to renegotiated pacts with 46 Independent Power Producers (IPPs) to clear about Rs400 billion dues in two instalments of 40 per cent and 60 per cent within six months.

Federal Minister for Finance and Revenue, Dr Abdul Hafeez Shaikh chaired the meeting of the ECC. The federal cabinet is likely to approve the renegotiated pacts with 46 IPPs in its meeting today (Tuesday). Secretary, Ministry of Energy briefed the ECC about the detailed report by the Implementation Committee regarding conversion of MoUs into agreements with IPPs to devise a payment mechanism for clearing outstanding payables. 

The Implementation Committee has agreed the payment mechanism with the 46 IPPs to clear the outstanding dues as on 30th November, 2020. 

The ECC commended the efforts made by the Implementation Committee and acknowledged the input of all concerned including Federal Minister for Energy, Federal Minister for Planning, SAPM on Power, Finance Division, Chairman Federal Land Commission, SAPM on Revenue, Governor SBP etc in working out a viable payment mechanism with the IPPs which will eventually save approximately Rs. 836 billion for the government over the average life of the projects. The ECC approved the report of the Implementation Committee with a direction to present the same before cabinet for final approval.

Officials said that payments would be made in 2 instalments. The first installment of 40 percent will be of around Rs180 billion, one third in cash, one third in 5-year Sukuk and one third in 10-year PIBs and will be cleared next month. The second installment of 60% – Rs 270 billion, of which 1/3 will be cash, 1/3 10-year Sukuk and 1/3 10-year PIBs. The second installment will be made in August or September this year.

It is worth mentioning here that inquiry Committee on Power Sector had pointed out that the IPPs had received Rs1,000 billion excess payments. It had further noted that indexation with dollar and capacity payments were major contributors to excess payments. In the revised deal, the government has also made amendments in the MoU signed with IPPs on December 12, 2020. Moreover, the government is going to continue dollar indexation with a higher ceiling that would continue to burden the power consumers due to the increase in power tariff. Out of the total 47 IPPs, the government had initiated agreements with 44.

FBR presented a summary regarding procurement of video Analytics Surveillance system (VAS) for proper monitoring of the production and sale of sugar in compliance with the directive of the Prime Minister. The ECC approved an allocation of Rs 350 million as a Technical Supplementary Grant for installation of the most optimal VAS solution at the sugar mills’ premises during the current crushing season as requested by the FBR. 

Federal Minister for Planning, Development and Special Initiatives Asad Umar, Federal Minister for Energy Omar Ayub Khan, Adviser to the PM on Institutional Reforms and Austerity Dr. Ishrat Hussain, SAPM on Revenue Dr. Waqar Masood, SAPM on Power Tabish Gauhar, Governor State Bank Reza Baqir, Chairman FBR and Chairman Board of Investment participated in the meeting.

Meanwhile, the Cabinet Committee on Energy (CCOE) yesterday approved the summary of payment mechanism for the outstanding dues of Rs 403 billion and revision of power purchase agreements (PPAs) with 46 Independent Power Producers (IPPs).

The Cabinet Committee on Energy (CCOE), that met under the chairmanship of Federal Minister for Planning, Development and Special Initiatives Asad Umar, was informed that out of 47 MoUs the implementation committee has agreed the payment mechanism and revised PPAs with 46 IPPs. 

The Power Division submitted the summary on payment mechanism and agreement with Independent Power Producers (IPPs). It informed the committee that out of 47 MoUs the implementation committee has agreed the payment mechanism with 46 IPPs, the source said.

As per the initial agreement, the Ministry of Finance will pay 40 percent of the dues to the IPPs immediately while the remaining 60 percent payment will be done during next fiscal year, the source said. For the 40 percent payment, the government will pay one third in cash and the remaining two third through two different bonds, the source said. Similarly for the remaining 60 percent the same mode of payment will apply, the source added. 

It is worth mentioning here that on August 13, 2020, the MoUs were signed by the federal government with 47 IPPs. The MoUs are signed for six months and the government is required to sign the agreements with the IPPs within the agreed period otherwise the MoU was supposed to lapse.

The Power Division submitted the summary on payment mechanism and agreement with Independent Power Producers (IPPs). The summary was based on the output of the implementation committee that was constituted to convert the MoUs with the IPPs into legally binding agreements. The committee completed its task and agreed on a detailed implementation mechanism with all the IPPs. Secretary Power Division briefed the CCoE on the salient features of the agreements and other details. He further briefed that the agreements will result in significant savings over the life of these projects, as envisioned in the MoUs. The CCoE approved the summary with recommendations to send the summary to ECC & Cabinet for further approval.

The CCOE in its meeting considered the report of the sub-committee constituted by the CCOE vide its decision dated 18.01.2021 regarding allocation of pipeline capacity to new LNG Terminals. The CCOE decided that in order to provide fair and level playing field to new LNG terminal, the existing available capacity in pipeline will be allocated to any applicant including CNG, meeting the requisite criteria for three (3) months rolling basis till such time the new Terminals achieve commercial operatios date.  

The Power Division requested the CCoE approval for ratification of a mistake made in previous summaries submitted to CCoE in its meetings held on 27th February 2019 and 28th August 2019, whereby three companies were erroneously included in two different categories at the same time. The Committee took a serious view of the matter. The Ministry was asked to rectify the mistake immediately and extent full facilitation to the private investors.

The meeting was attended by Minister for Energy Omar Ayub Khan, Federal Minister for Information and Broadcasting Shibli Faraz, Federal Minister for Finance and Revenue Abdul Hafeez Sheik, Abdul Razak Dawood Adviser to the Prime Minister on Commerce & Investment, SAPM on Petroleum Nadeem Babar and official of various divisions.