ISLAMABAD: The federal government’s Energy Task Force and many Independent Power Producers (IPPs/about 18) reached a consensus on a hybrid “take and pay” model after more than two weeks of intensive discussions.
The task force, headed by Minister for Power Sardar Awais Khan Leghari, includes SAPM on Power Muhammad Ali, National Coordinator Lt. General Muhammad Zafar Iqbal, the NEPRA Chairman, the CEO of CPPA-G, the Managing Director of PPIB, and other experts from NEPRA, CPPA-G, and SECP. The group has been in negotiations with the IPPs to finalize the revised agreements.
The government estimates the new agreements could result in savings of Rs 200 billion to 300 billion. Legal teams from both sides have reviewed the revised Power Purchase Agreements (PPAs) and Implementation Agreements (IAs), which will require Cabinet approval before submission to NEPRA for tariff adjustments. Aaj News reported this development today, citing its mother organization daily Business Recorder.
Key Details of the Agreement
The agreements involve prominent IPPs such as Nishat Chunian Power Limited (NCPL), Hubco Narowal Energy, Liberty Power Tech Limited, and Engro Power Gen Qadirpur Limited, among others. NCPL formally notified the Pakistan Stock Exchange (PSX) about its approval of the new model. Its Board of Directors endorsed amendments to the PPAs, IAs, and tariff structures, signaling a transition to the hybrid model.
Key Terms and Conditions
- Implementation Date: The amended agreements will take effect on November 1, 2024.
- Indexation Mechanism: Changes will apply to Operations & Maintenance (O&M) indexation.
- Rebased Tariff: Working capital and O&M costs have been rebased.
- Equity Return: The return on equity will be paid under the hybrid model.
- Insurance Premium Cap: Insurance premiums are capped at 0.9% of the EPC cost.
- Profit Sharing: Profits up to FY’23 will be adjusted against receivables from CPPA-G.
- Arbitration Withdrawal: The government will withdraw all arbitration claims.
- Receivables Payment: Outstanding receivables as of October 31, 2024, must be cleared within 90 days of Cabinet approval.
- Arbitration Clause Revision: The London Court of International Arbitration (LCIA) clause will be replaced with arbitration seated in Islamabad under local laws.
Broader Impacts
The renegotiated agreements with these 17 IPPs increase the total number of revised contracts to approximately 30, including those from pre-1994 policies, bagasse-based IPPs, and renewable energy projects. The next phase will focus on government-owned power plants and renewable energy initiatives, including wind and solar projects.
The government projects a potential tariff reduction of Rs 3.50 per unit from these revisions, which could extend to Rs 6.50 per unit if debt restructuring agreements are reached with Chinese IPPs, pending Beijing’s approval.
