By Ali Imran
ISLAMABAD: The Independent Power Producers (IPPs), that have installed energy plants under the China-Pakistan Economic Corridor (CPEC), have opposed the terms of revised agreements to reduce the rate of return.
The stalemate between the government and wind IPPs continues as well due to hurdles arising from involvement of from multilateral donors.
The government has already struck a deal with other IPPs and made payments to them by reducing the rate of return. Now, the leadership wants the same deal with Chinese IPPs under CPEC and wind IPPs.
However, the government is facing troubles in striking a deal with them due to the involvement of multilateral financers.
The government wants to discount the tariffs of IPPs by reducing the return on equity (ROE), return on equity during construction (RODC), operation and maintenance (O&M) and insurance.
While considering the implementation status of master agreements and amendments to the Power Purchase Agreement with wind IPPs, the Power Division told the Cabinet Committee on Energy (CCoE) that the IPPs under CPEC had not agreed to any of the conditions nor have they drafted any mechanism for discounts.
Officials from the Power Division stated that among the lenders, International Finance Corporation (IFC) and Asian Development Bank (ADB) were eager for reduction in ROE and insurance as per the initial agreement, however no formal commitment was provided because a US-based development finance corporation (DFC) presented an alternate proposal.
The latter offered to extend the debt tenor by five years along with reduction in spread by 0.5%. The development finance corporation claimed that its proposal would entail higher amount of savings compared to the ones stemming from the reduction in ROE, RODC and O&M. The cabinet body was informed that the CPPA-G had analysed the above claim and determined that as per initiated agreements, the estimated savings from reduction in ROE, RODC, O&M and insurance would be Rs36 billion for four projects financed by the development finance corporation. It would initially provide temporary relief in cash flows for the first six years but the government of Pakistan would eventually have to bear an additional financing cost of Rs10 billion for the relief.
The Finance Division was of the view that the matter may be resolved by the Power Division without causing any financial implication to the government of Pakistan. The Alternative Energy Development Board (AEDB) observed that the offer of the development finance institution might hamper other wind IPPs from proceeding with the initiated agreement and a time limit would be set for the negotiations.
If the stalemate continues, the IPPs would be asked to consider an offer subject to reduction of spread by 1.5% instead of 0.5%.
