By Zaheer Abbasi

The Economic Coordination Committee (ECC) of the Cabinet has approved Rs64.0876 billion supplementary grants for making 40 percent payment to Independent Power Producers (IPPs).

Sources told Business Recorder that the Ministry of Energy has sought approval of supplementary grant for first installment of 40 percent to the IPPs under the payment mechanism.

The ECC was requested that for approval of Rs5.8476 billion for payment to the NCPL as installment (40 percent of total Rs14.619 billion), Finance Division to reissue Rs39.240 billion for onward payment to the IPPs against the respective heads of power subsidy claims for fiscal year 2020 and fiscal year 2021 and remaining amount of Rs19 billion for payment to the IPPs. The meeting was informed that the ECC has already approved the supplementary of Rs58.240 billion in September 2021.

The meeting was further informed that the Cabinet Committee on Energy (CCoE) and the ECC have approved the payment mechanism and agreements with the IPPs in February 2021 and the same was ratified by the Cabinet. However, on account of NAB investigation, ECC/federal cabinet decided that; (a) payments to all the IPPs (under pre-1994, 1994 and 2006 Power Policy) may be processed according to the signed agreements except for the IPPs under Power Policy 2002 till the conclusion of the NAB investigation and; (b) the NAB may inform, if they have any objection to the signing of these agreements and making of payments to the IPPs of 2002 Policy.

In response to the ECC decision, the NAB in June 2021 informed that illegal gain of Rs8.36 billion has been established against M/s Nishat Chunian Power Limited (NCPL) due to determination of tariff at the higher side. The NAB further intimated that the Ministry of Energy, if so desired, may process subject to all legal exceptions with the revised agreements vetted by the Law and Justice with the IPPs under Power Policy 2002, after securing the amount of loss caused to the exchequer as established during the NAB investigation in the best interest of the State.

Accordingly, the CCoE in July 2021 assigned responsibility to a committee (Re-negotiation Committee) to renegotiate the master agreements with the IPPs established under 2002 Power Policy in the light of the NAB letter.

The renegotiation committee decided to refer the matter to the Law and Justice Division for its opinion and the Law and Justice Division’s opinion was that the government may proceed as per the Master Agreement already executed with the IPPs. However, as regards to the NCPL, the government may proceed further subject to injunctive orders, if any passed by any Court of Law.

The ministry was advised to devise a mechanism for securing the said amount, subject to any injunctive order of the court.

Based on above facts and opinion by Law and Justice Division, the re-negotiation committee prepared its detailed report and decided that the matter of 11 IPPs under 2002 Power Policy should be treated separately from the NCPL and negotiation with the NCPL should continue in the light of direction by the committee to secure the amount of the alleged illegal gains. A report by the renegotiation committee was approved by the CCoE in September 2021.

Considering the decision of the CCoE of September 2021, renegotiation committee continued negotiation with the NCPL. After due diligence with the stakeholders – the NCPL and the Law and Justice Division – the committee prepared its report and recommended to the CCoE that the Master Agreement and Submission Agreement with the NCPL should be implemented in line with the other 11 IPPs of 2002 Power Policy and secure the alleged excess profits of Rs8.36 billion by way of draft undertaking as amended by the Law and Justice Division. The CCoE in its meeting dated December 2, 2021, approved the report along with other recommendations. The payment has to be made to the NCPL of Rs14,19 billion under the approved payment mechanism as provided in the Master Agreement.

The meeting was apprised that the ECC in September 2021 also approved a supplementary grant of Rs52.432 billion in respect of 11 IPPs under 2002 policy to be released in accordance with the payment mechanism.

Moreover, the ECC on 30th of September 2021 approved a supplementary grant of Rs14.52 billion payment to an 1PP (TNB Liberty) under 1994 Policy in accordance with the same payment mechanism.

The Power Division had initiated the case for transfer of funds Rs58.240 billion and referred the same to the Finance Division. However, the Finance Division surrendered Rs58.240 billion to the Power Division stating that the same may be utilised against the outstanding subsidy claims for the fiscal year 2019-20 and fiscal year 2020-21 and in order to resolve this accounting issue of adjustment, series of meetings were held with the Finance Division to explain the situation and the Power Division’s stance that sufficient balances are not available in the outstanding subsidy claims for adjusting these payments and therefore, the amounts may be adjusted as equity in D1SCOs.

Based on above understanding, the Finance Division agreed that out of Rs58 billion, Rs39 billion may be released against past tariff differential subsidy claims and remaining Rs19 billion to be adjusted as investment/equity to Disco. On the summary, the Finance Division’s comments have been received and it has agreed with release of funds of Rs64.0876 billion.

However, the Finance Division has disagreed with accounting treatment of the transactions; however, the Power Division reiterates its earlier stance as shared with the Finance Division.

The article was originally published in Business Recorder on 19 December 2021.