August 25, 2020 (MLN): Hub Power Company Limited (HUBC) on Monday held its analyst briefing primarily to discuss the clauses of the MoUs signed with the Committee for Negotiations with Independent Power Producers (constituted by the Federal Government).
Recently, the company executed its MoU with the Committee for Negotiations with IPPs, whereby both the parties agreed to reduce the existing fixed O&M by 11%, whilst keeping the existing arrangement of US$ exchange rate and US$ CPI on the fixed O&M.
At the same time, the Parties agreed to discontinue the US$ Exchange rate and US CPI indexation on the Project Company Equity and fix the same at the National Bank of Pakistan’s TT/OD selling PKR/USD exchange rate prevailing as on August 21, 2020.
The Parties also agreed that payment of the receivables of HUBCO is an integral part of the MoU. The Power Purchaser and the Federal Government will devise a mechanism for repayment of the outstanding receivables to the company within an agreed time period, which will be reflected in the final agreement to be signed.
The Parties also agreed that payments shall follow the PPA mandated FIFO principles. Further, as and when the Competitive Trading Arrangement is implemented and becomes fully operational, without prejudice to the terms of its generation license, HUBCO shall support and participate in the same.
According to a report by Topline Securities, the management of the company informed that there will be no termination of existing plants unless it agrees voluntarily. The dispatch from base plant is likely to continue in winter season when hydel potential is low.
It further apprised that the committee will finalize the plan for backlog of receivables over the next two weeks which will be presented to the Prime Minister. The MoU will be valid for a maximum of six months.
It is pertinent to note that the total overdue receivables of HUBC are Rs. 89 billion, which includes. Rs 65 billion for base plant, Rs. 19 billion for Narowal plan and Rs. 5 billion for Laraib plant.
The company is currently advising the government regarding the launch of new instruments to clear outstanding amount of circular debt, the report added.
The report by Foundation Securities further apprised that the Company’s management is of the opinion that current initiatives including reduction in tariff of IPPs and development of Transmission and Distribution system would help to lower quantum of circular debt and prevent its increase in the future. Their view is opined on resurgence of electricity demand which remained subdued due to COVID-19 outbreak.
In case of termination of contract, which is least likely, the government is liable to pay present value of five years of RoE component to the company, and the company would convert two of its units on coal for supply of electricity to KE. While remaining two units would be converted for seawater desalination with treatment capacity of 150mn gallon per day, the report added.
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