Islamabad:

The government has successfully reached an agreement with 14 independent power producers (IPPs) on revision of tariffs, which will result in savings of RS813 billion for consumers and helping to solve the circular debt, estimated at RS329 billion.

According to the revised agreement, the IPPs agree to return excess profits of a total of RS31 billion compared to the original RS55 billion requirements. In addition, the government has agreed to close ongoing investigations from the National Accountability Bureau (NAB) and National Electric Power Regulatory Authority (NEPRA) against certain IPPs, including Nishat Power Limited, Nishat Chunian Power Limited, Liberty Power Tech Limited and Atlas Power Limited.

As part of the negotiations, the IPPs also agreed to waive their demands for late payment interest (LPI) at outstanding amounts.

The potential buyers of UPL and UPL-2 agreed to waive their claim of LPI access haves of Power buyer worth Rs 62.5 billion on condition that the government should facilitate in the exception of the LPI requirement from OgDcl from UPL and UPL-11 on Rs 46 billion. Ogdcl had not registered that LPI requirements in its account books.

Similarly, five IPPs on the SNGPL network had also waived their LPI Gardener from the Power Buyer on Rs 4.6 billion on condition that the government would facilitate the LPI claims from SNGPL, which amounts to Rs 1.9 billion against IPP ‘ are.

According to the agreement, the IPPs agreed to convert all returns on equity (ROES) to rupi and reduction in capacity payments and customs under a hybrid take-and-pay model.

Both sides also agreed on the dismissal of dispute over excess savings from the past and waive late payment interest.

Government officials said agreement was in the best interest in the country, resulting in a saving of RS813 billion and settling the circular debt for an estimated amount of Rs. 329 billion. The circular debt like a “bottomless pit” softened the economy.

The Task Force on implementation structure reforms in the electricity sector, composed by the Prime Minister, had discussed in accordance with the recommendations of the System Operator, which proposed to continue the operation of 18 IPPs – five thermal plants under the power policy in 1994 and 13 plants under 2002 current policy (12 thermal and one Hydro) – With a perception of renegotiating their customs structures.

Following the recommendation of the System Operator, the Task Force held several rounds of discussions with the sponsors of these IPPs and managed to renegotiate the customs structure of 10 IPPs under 2002 power policy.

The Task Force also negotiated and recommended the recovery of excess savings from the past for 10 IPPs under Power Policy from 2002. Generation Company Limited, was still in progress.

The system operator also recommended to end an IPP during the power policy in 1994 and including Kapco in the network, which was also negotiated and recommended by the Task Force.

By reduction in capacity payment and duty during a hybrid take-and-pay model, the IPPs had agreed to reduce their tariffs during a model where their regular operations and maintenance (O&M) costs would be paid based on their existing actual O&M ( Take or pay with reduced payments in the future).

Their ROE would be paid based on their actual energy production instead of the current payment model at full capacity, with a certain minimum agreed ROE to ensure sustainability. Accordingly, agreements were obtained to implement the customs reduction during a hybrid take-and-pay model.

With regard to the dispute between the government and 12 IPPs, after the report dated March 16, 2020, submitted to the Government by the Power Sector Audit Committee, Circular Debt Solution and Future Roadmap and Renegotments held between government and power plants, Under 2002 Politics, a dispute over Rs. 55 billion regarding excess savings from IPPS in the past emerged. The Government and the 12 IPPs agreed to submit to the dispute to arbitration in accordance with the conditions of the arbitration agreement (ASAS), which was carried out on June 15, 2022.

These ASAs were executed on September 13, 2021 and December 24, 2021. The government and IPPs were able to form the court by nominating judges as demanded by Asas, but the arbitration case remained pending in the last three years at Due to different legal and procedural matters.

Due to the prolonged addiction, the task force that was negotiated for recovery of previous savings with these IPPs and recommended recovery based on the model, which from COD to 2021, must be saved by IPPS in fuel by drawing the eligible facts Fuel costs, as reported, as reported in the annual audited accounts in the respective years, from the permitted payment instead of the fuel cost component of IPPS in the corresponding years.

These savings are divided in 90% ratio for the power buyer and 10% for IPP. From 2022 onwards, the division mechanism for savings in fuel costs is determined in accordance with the provisions of the master agreements carried out between the power buyer and IPP.

From COD to 2021, it was agreed that savings in O&M should be calculated by deducting the eligible actual O&M, as reported in the annual audited accounts in the respective years, from the permitted payment instead of the O&M component accordingly.

Furthermore, an audit reserve is allowed for the IPPs to cover and pay for the cost of inspection of plant and machines in the coming years. The IPPs must explain the audit reserves in their audited accounts, and 100% of the unused reserves, if any, will be transferred to the power buyer. From 2022 onwards, the division mechanism for savings in O&M is determined in accordance with the provisions of the master agreements carried out by the relevant IPP and the Power Builder.

On the dismissal of the dispute with nine IPPs, which had ASAS and UCH-II Power Limited, a solution was proposed with the 10 IPPs, whereby a number of Rs. 31.65 billion had been calculated for improving the power buyer from the IPPs instead of previous savings.

Following the recovery of the fuel of the past and O&M savings, the government agreed to unconditional and irrevocable to withdraw and turn off all claims against the relevant IPPs under the respective nine ASAs and the disputed claim with UCH-II Power (private) Limited . It was agreed that relevant IPPs and the government jointly communicate with the court established under ASAS to formally terminate and waive arbitration.

In addition, it was agreed that the government should facilitate Nishat Power Limited, Nishat Chunian Power Limited, Liberty Power Tech Limited and Atlas Power Limited in the withdrawal of the procedure initiated by NEPRA against them for abnormal profits/excess savings in fuel and O&M. In his letter on February 9, 2024, Nab Lahore informed that the competent authority had approved the conclusion of the investigation at the end of the NAB and referred the case to the Ministry of Energy (Power Division) with a specific reference to invent arbitration on topic.