October 23, 2020 (MLN): The Board of Directors of Nishat Power Limited, in their meeting dated October 23, 2020, have in-principle approved the terms of the MoU dated August 13, 2020, subject to the following conditions
- the satisfactory payment of the receivables of the Company within a definite timeline and
- the satisfactory resolution of the matter of retrospective profits
- other regulatory approvals, and along with the satisfaction of reservations mentioned in the Company's side letter dated August 13, 2020, which is to be considered an integral part of the MoU.
For the uninitiated, Nishat Power Limited and the Committee for Negotiations with Independent Power Producers (constituted by the Federal Government) had executed a Memorandum of Understanding (MoU), the salient features of which are as follows;
1. The Company has, in the larger national interest, voluntarily agreed to provide concessions considering the fact that a significant period has passed since its commercial operation date.
2. For oil-fired projects, any future savings in fuel shall be shared on a sliding scale starting from 70:30 in favor of the power purchaser for the first 0.5% efficiency improvement above currently, NEPRA determined benchmark efficiency, followed by 60:40 for next 0.5%, followed by 50:50% for next 0.5%, and finally 40:60 for any efficiency above that. The power purchaser shall not share in any efficiency losses.
3. For oil-fired projects, any future savings in O&M shall be shared 50:50 after accounting for any reserves created, or to be created, for major overhauling, to be reviewed by power purchaser or NEPRA as mutually agreed. If the reserve for major overhaul remains unutilized, it shall be shared in the ratio of 50:50 between the power purchaser and the IPPs. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference shall be carried forward to the future years. The power purchaser shall not share in O&M and major overhaul losses.
4. For gas-fired projects, fuel and O&M shall be taken as one consolidated line item and any future net savings shall be shared 60:40 in favor of the power purchaser and IPPs respectively, after accounting for any reserves created or to be created for a major overhaul, to be reviewed by power purchaser or NEPRA as mutually agreed. If the reserve for major overhaul remains unutilized, it shall be shared in the ratio of 60:40 between the power purchaser and the IPPs. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference shall be carried forward to the future years. The power purchaser shall not share in O&M and major overhaul losses.
5. In order to ensure that the actual efficiency is matching the efficiency reported in the financial statements, the power purchaser shall appoint a reputable international independent consultant to perform a one-time detailed heat rate test for all IPPs, for which the power purchaser and IPPs' representatives shall agree on the TORs, standards, and corrections required.
6. For all future invoices, Delayed Payment Rate (“DPR”) under the PPA shall be reduced to KIBOR + 2% for the first 60 days after the due date, and thereafter at KIBOR +
4.5% as per the PPA. For IPPs where the Gas Supply Agreement is signed with an entity with significant ownership of GoP, the same DPR rates shall be payable by the IPPs to the gas supplier. Further, for all invoices, the power purchaser shall ensure that payments follow the PPA mandated FIFO payment principle.
7. In the future, for foreign equity investment presently registered with SBP, the Return on Equity (“RoE”) including Return on Equity During Construction (“RoEDC”) shall be changed to 12% per annum, and for local investors, the RoE including RoEDC shall be changed to 17% per annum in PKR on NEPRA approved equity at CoD calculated at PKR/USD exchange rate of PKR 148/USD, with no future USD indexation. The miscalculation of IRR, on account of the periodicity of payments, has been addressed through this reduction in return component.
8. The Government of Pakistan shall actively support the creation of competitive power markets. All projects shall convert their contracts to Take and Pay basis, without exclusivity, when Competitive Trading Arrangement is implemented and becomes fully operational, as per the terms defined in the license of IPPs. In the interim period, CPPA (G) shall work towards providing access to the bilateral market at the earliest.
9. In order to assess if IPPs have made any excess profits, the reconciled numbers between the Committee and the IPPs shall be submitted to NEPRA. As a legal body vested with the authority for tariffs, NEPRA shall hear and decide this matter in accordance with the 2002 Power policy, tariff determinations, and PPAs and provide for a mechanism for recoveries, where applicable.
10. The Parties recognize that payment of the receivables of the IPPs is an integral part of this MoU. The Power Purchaser and GOP shall devise a mechanism for repayment of the outstanding receivables with an agreement on payment of receivables within an agreed time period which shall be reflected in the final agreement to be signed. The power purchaser shall ensure adherence to its contractual obligations, and GOP and power purchaser shall work towards resolution of the LCIA awards for the relevant IPPs.
11. The Parties agree that nothing contained in this MoU shall be deemed or be construed as an admission of liability, wrong-doing or improper action on the part of the IPP. Except for the matters provided in this MoU nothing shall prejudice any other rights and remedies available to the Parties under the relevant agreements.
12. This MoU or any of the terms of this MoU shall not be construed as an alteration or amendment to the Power Purchase Agreement or Implementation Agreement. Once NEPRA, Federal Cabinet, and Board of Directors of the IPP approve the terms of this MoU, the parties shall agree and document details and procedures of these understandings preferably within 30 days, after which the same shall be submitted to NEPRA and CPPA (G), to be followed by legal documentation to reflect the amendments needed in the tariff and relevant agreements.
13. This MoU is valid for six months from the date hereof and shall stand terminated on the signing of the detailed agreement referred to in clauses 10 and 12 above.
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