New terms with IPPs to help govt save Rs120 billion every year

ISLAMABAD: On payment of the first tranche of outstanding undisputed payables to IPPs in line with the revised contracts, revised terms have become effective, which will result in saving of at least Rs120 billion a year. These major revised terms include rupee based return instead of USD based maximum 17pc per annum in PKR fixed at Rs. 148 USD without any future USD linkage, besides reducing the rate of return for local and foreign investors to 12pc USD instead of 15pc USD.

Sources in the Finance Ministry told this correspondent that as per the agreement with IPPs, the government has released the first tranche Rs64 billion under revised contracts to 12 IPPs ex-2002 Power Policy and one IPP ex-1994 Power Policy. These revised contracts have already been approved by the federal cabinet in February 21. These revised terms and conditions were also presented to the NAB and whole negotiation process was approved by the NAB to avoid future investigations.

Under the new agreements, the government will benefit from future savings of fuel and operation maintenance cost on annual basis and interest rate on payments reduced from KIBOR + 4.5% to KIBOR + 2%. The interest on interest claims of these IPPs are pending in different courts against government, which has been settled during negotiations and will also save billions of rupees in future. These interest on interest claims were waived off during these contracts.

A senior official in the power ministry said that heat rate tests of 2002 Power Policy IPPs will be conducted within the next three months, which can reset efficiency having further reduced tariff after the tests. Furthermore, the resolution of Rs56 billion made in excess payments in the past against 2002 Power Policy IPPs will be achieved through Arbitration Panel of ex-judges of Supreme Court, whose decision will be binding for both the parties without going further into appeals in foreign /locals courts.

After release of first installment to 2002 IPPs, reduced tariff of over 6,500 MW of IPPs has become effective. The projected saving from revised contracts of the IPPs on voluntarily basis are more than Rs836 billion. The outcome of these negotiation template has already been implemented on government-owned power projects, including nuclear plants which are around 20,000 MWs. This whole exercise will have projected savings of over 7,000 billion in the next 40 years. These revised contracts will also act as a guideline for future power related contracts as well.

The IMF has lauded the IPPs revised contracts (termed as notable structural achievement of government) for unlocking lower capacity payments/ other concessions extracted after negotiations from IPPs.