The government’s decision to dishonor deals with a dozen power stations may seriously tarnish its reputation, result in the loss of hard-earned earnings of billions of rupees each year, in addition to exposing it to pay more than 22 billion rupees to the power plants. power to settle international arbitral awards.
Six months ago, the government obtained significant concessions from independent power producers (IPPs) by applying political force and using the baton of intelligence agencies. But he is now on the verge of losing those gains due to political expediency, weak bureaucracy and undue interference by the National Accountability Bureau (NAB), government sources have said.
One of the biggest concessions the government had secured was that the PPIs agreed to forgo the awards they had won from the London International Court of Arbitration (LCIA) against the government, which was also at stake.
About nine IPPs had won arbitration awards in a capacity dispute and as of July 31, 2021, the award amounted to 14.5 billion rupees at the current exchange rate, in addition to the 7 billion rupees at the current exchange rate. ‘post-award interest, based on PPI calculations.
Following this backtracking, Prime Minister Imran Khan’s desire to reduce electricity tariffs by passing on the benefits of agreements negotiated with 46 IPPs would also remain partially unfulfilled, as his government was unable to honor the agreements signed. in February of this year.
Last month, the government decided to reopen deals with 12 IPPs put in place as part of the 2002 energy policy due to its failure to comply with the arbitration submission agreement, which is part of the framework agreement of February 2021 and alleged pressure from the NAB.
The Cabinet Committee on Energy (CCoE) had approved that “the agreements with the PPIs put in place as part of the 2002 energy policy finalized by the implementation committee be reviewed in the light of the opinion of the NAB “.
Based on the concessions granted by the PPIs, “the revised tariff will enter into force on the date on which the last payment under the payment mechanism has been paid to the company”, according to the agreement.
The government was supposed to make the first 40% installment by June and the second within six months of the first installment, which the government has now defaulted on due to the agreement’s late entry into force.
“Subject to the terms of this Agreement, after notification of the revised tariff determination in accordance with the tariff adjustment request and payment of the first installment under the payment mechanism, and until the date of entry into force of the revised tariff , the parties agree that the company shall, begin granting a discount on future invoices in accordance with the notified tariff, ”according to the agreement.
The PPIs had agreed that if their factories were operating at an efficiency level above 45%, they would share their gains with the government, Clause 4 of the agreement reads. Likewise, Clause 5 of the agreement shows that the IPP will also share any savings in operating and maintenance costs, which would have resulted in low tariffs.
These two clauses 4 and 5 were to be made operational from July 2021 and were to share their accounts for the 2021-2022 fiscal year with the government to honor the agreement. This has now been delayed due to the government’s backsliding on the agreements. When contacted, a government spokesperson said that “the agreements come into effect once payments are made, therefore it cannot be inferred that a loss is being caused instead, the savings. will start to accumulate once the agreements come into force. But it looks like the government, which is now afraid of the NAB, may one day face another investigation for causing potential losses due to a delay in implementing the PPI deals.
To another question, the government spokesperson said that “the amount of savings depends on many factors, including the exchange rate, fuel rate, energy produced, actual costs incurred by PPIs, states audited financial statements of PPIs, etc. savings accumulate under the revised agreements.
Various forums, including the Cabinet Committee on Energy (CCoE), the Economic Coordination Committee (ECC) and the Federal Cabinet approved the payment mechanism finalized by the Implementation Committee and the agreements with the PPIs in February. . However, the NAB intervened in the case because a previous commission headed by former Securities and Exchange Commission of Pakistan (SECP) chairman Muhammad Ali alleged excessive gains by the 2002 political PPIs.
The NAB and the government were making claims of 53 billion rupees against the 2002 political PPIs and, under clause 9 of the agreement, the two sides had agreed to an arbitration agreement, on which the government had agreed. now backtracked. The government spokesperson said: “There is no question of honoring the arbitration submission agreement instantly, as the arbitration submission agreement is part of the framework agreement and it will come into effect. effective once payments are made to PPIs. He said the federal cabinet has set up a committee to finalize the payment process and make the agreements effective.
However, in effect, the government has now reopened the agreements six months after they were signed, questioning its credibility. Under clause 2.7, the IPPs had also agreed to waive their right to award money, decided by the international court of arbitration.
The government spokesperson said that the LCIA’s sentence enforcement proceedings were ongoing and had not yet been finalized, an effort was made to address these issues through settlement agreements with PPIs. will not be subject to penalties.
A company had waived 1.81 billion rupees due to the LCIA award against the government of Pakistan. The execution of the sentence is pending before the High Court of Lahore.
But the sources said that the way the government has retracted from its commitments despite assurances given by the security establishment, PPIs may be thinking of international arbitration that could further complicate the matter.
“But we want to give the government another chance to keep its commitments before taking the extreme step,” said the general manager of an IPP while seeking anonymity.
The 2002 PPIs that have come under closer scrutiny are penalized for their efficiency gains as the government turns away from cutting production costs to target the balance sheets of firms where efficient and inefficient firms are treated on an equal footing.
The government’s decision to treat businesses differently can also cause problems for businesses in the future. In the future, Pakistani IPP sponsors will earn 17% Pak rupee-linked stock returns while overseas sponsors will achieve 12% dollar-linked returns. However, GDF Suez, which owns 100% of the capital of Uch Power, did not sign the agreement and will achieve dollar-linked returns of 15% under the old impeachment because it did not conclude. no deal with the government.
Posted in The Express Tribune, August 5e, 2021.
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