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Excessive payment to IPPs

One of the major factors of 1.20 trillion circular is the power sector agreements made with Independent power producers (IPPs). Despite the stinging critique of energy experts in their writing in print media and comments on electronic media, none of the elected governments persuaded the owners of these private power producers to agree to the audit of power production cost because their intimate friendship with the top leadership of PPP and PML-N. In President Musharraf government successful negotiations were held to reduce the power tariff allowed to them to relieve the pressure of powerful capitalist class on the federal government and avoid litigations in the arbitration courts.

Initially the IPPs agreements had a proviso of “build, operate and transfer.”The clause may have been discretely deleted because the shape of the agreements then came to be “build, operate and own.”The agreement also had the anti-national interest provision of payment on 40 percent idle capacity of the power plants.

The Chief Justice of Pakistan Mian Saqib Nisar on Saturday took suo motu notice over excessive payments made to IPPs in connection with circular debt. The Chief Justice issued notices to the IPPs and sought report within three days. The top judge observed that he has been apprised that excessive payments were made to IPPs in connection with circular debt and apparently it was a matter o$1.5 billion.

In the Pakistan People’s Party second tenure of government in 1993-96, cobweb power purchase agreements (PPAs) were made with Independent Power Producers (IPPs) the clauses of which were heavily loaded against the national interest, particularly the capacity charges clause. But on the contrary, party leadership through persistent public relations and media campaigns; dishonestly told the people that Pakistan is being transformed into another Hong Kong by virtue of these agreements. The PPAs then turned out a heavy yoke around the neck of poor people of the country.

The 40 percent component of over one trillion power sector circular debt include capacity charges to be paid to IPPs for which the previous PML-N government could arrange a paltry amount of Rs. 80 billion. The National Distribution and Transmission Company (NDTC) lost a case regarding payment of Rs. 11 billion to nine IPPs in 2017 in London Court of International Arbitration (LCIA). Now London High Court has passed an order for payment of litigation costs amounting Rs. 66.7 million to them by the company.

NDTC had approached this British Court against the decision of London Court of International Arbitration (LCIA) award regarding payment of Rs. 11 billion plus Rs. 3 billion markups to nine IPPs. The award pertained to payment dispute of capacity charges to IPPs, which included Altas Power Limited, Liberty Power Tech Limited, Nishat Chunian Power limited, Hubco Power Company Limited, Saif Power Company limited, Saphire Electric Company Limited and Halmore Power Generation Limited.

Interestingly, sponsors of some of these leeches, sucking out the last drop of blood from the poor people of the country, have been securing contracts to set up mega power projects as international arbitration against Pakistan progressed but the PML-N previous government was keen to reward them at the expense of 200 million people of the country. They have been securing licenses to set up mega power projects. The companies had signed a memorandum of understanding (MoU) with the government as part of settlement of Rs. 480 billion circular debt in 2013 outside the court. Differences between IPPs and NDTC developed in January 2011 over the non-utilisation of full capacity of thermal power plants due to fuel shortages which the companies blamed on the latter. It led to sever liquidity problems as the formers were unable to procure fuel for operating their plants to full capacity. The IPPs had invoked the Supreme Court Jurisdiction under Article 184 (3) in 2012 and the court directed NDTC to pay the outstanding amount but the company cleared some amount and signed a MoU with IPPs and the government to resolve the dispute through resolution mechanism set out in the PPAs. Hence matter went to LCIA which in its final award asked the NDTC to make the payment on account of capacity charges along with mark up accrued thereon.

The company invoked the jurisdiction of London High Court but met a debacle in the form of court order to pay the litigation costs after withdrawal of the case. It is learned that in compliance of the court order dated May 28, 2018 the NDTC, inter alia, had to pay 400,000 pounds to IPPs by June 29, 2018. It made the payment by the said date; however, the amount so paid was unallocated and it is only after written confirmation from NDTC solicitor Howard Kennedy and internal working of the IPPs were able to trace the amount. A comprehensive review of the Power Purchase Agreements (PPAs) needs to made in the national interest.