Owing to the ongoing National Accountability Bureau (NAB) inquiry, the government has missed the deadline to pay the first installment of about Rs85 billion to about 19 Independent Power Producers (IPPs) as agreed on Feb 28.
Read More: ECC may halt payments to IPPs
According to the pre-1994 and 1994 policy under which these IPPs were set up, the agreement was that these parties would be entitled to send the notices of default to the government on 30th March.
Under the agreements signed on the 28th of February, the government was to clear about Rs85bn to 19 pre-Nepra IPPs latest by March 29. All the procedural work was done and the funds should have been cleared and dispatched.
The agreement with IPPs was a collective decision of the government and involved the Cabinet Committee on Energy, Economic Coordination Committee of the Cabinet, and the Federal Cabinet, but a political legacy marred the final payments.
As a result, the Power Division was reluctant to release such a sizable amount at its own and sought approval of the ECC for a collective responsibility as the NAB announced to examine the revised agreements and called entire record from the Power Division and its related agencies.
Payment mechanism
The Finance Division, differed from the rest, arguing that it was a regular payment, and there should be no roadblocks (a reference to NAB) on this. Therefore, even though the ECC did not take a decision and payments remain outstanding.
For the second category of 14 IPPs, Nepra has conducted public hearings on the agreements but has yet to issue its determination. It was agreed that the payments would be released 30 days after the ratification of tariffs by NEPRA.
The third category of about five IPPs blamed for getting excess payments by an earlier investigation committee led by former SECP chairman Muhammad Ali must go through the arbitration process. Thus, payments to IPPs of the second and third categories are not payable yet.
A Power Division spokesman said it would be unfair to describe the non-payment by a given date as a government default even though he agreed it was a technical default that was curable. At worst, the IPPs would be free not to give certain tariff discounts but the government still had reasonable time to address the issue and best efforts would be made to that end.
Reportedly, the government sources are of the view that the non-payment should not be seen as termination of agreements, but it is just that the government is trying to ensure transparency in the agreements and transfer of public funds.
The agreement between PPA and an IPP in February said, “ln the event of any default by the Power Purchaser the Company shall suspend giving Tariff Discounts from the date of default; provided, however, if such default is not cured within a period of seventy (70) Days, the Company shall have the right to terminate the Agreement by seven (7) Days’ Notice.”
Read More: NAB Clears the Government-IPPs Deal!
This means that government still has two months to cure the default before the IPPs have the right to terminate the agreement.