ECC to take up major power sector issues today

ISLAMABAD: With the power sector emerging as the country’s biggest economic challenge, the Economic Coordination Committee (ECC) of the Cabinet is set to take up today (Wednesday) at least four critical policy decisions including the payment of 40 per cent dues to the independent power producers (IPPs). The other items on agenda include arrangement of additional power from the national grid to K-electric, setting fresh principles for power sector subsidies and granting tax exemptions to Chinese contractors of hydropower plants in Azad Kashmir.

To be presided over by Finance Minister Shaukat Tarin, the meeting will also take up a summary of the Ministry of Industries and Production for uninterrupted supply of oxygen gas in the country for medical purposes, including through a plant at the Pakistan Steel Mills.

A small group of concerned ministers, prime minister’s advisers, special assistants and federal secretaries met here on Tuesday and decided to include an agreed upon summary of the Power Division for payment of first 40pc installment of Rs403 billion committed with the IPPs.

It was decided that about Rs90bn worth of first payment to IPPs set up under the 1994 power policy and before be cleared without any further delay. The Power Division has also requested the ECC to take a collective decision on payment of remaining amount of about Rs58-60bn to IPPs under the 2002 power policy — generally known as Mansha group IPPs — whether to make payments or wait for the clearance of the National Accountability Bureau (NAB). These IPPs were blamed by an investigation committee to have taken out Rs52bn excess payments.

Under the payment mechanism agreed upon with the IPPs, the amount was to be paid in two instalments. The 40pc of said payables was to paid latest by March 12 — one-third in cash, one-third in five-year sukuk and one-third in 10-year PIBs at floating rate of T-bills plus 70 basis points. The remaining 60pc would be paid within six months in almost the same manner. However, the payment schedule derailed after NAB decided to examine the deal.

The Power Division has proposed that payments to all IPPs under Power Policy 2002 that signed agreements may be withheld till the conclusion of NAB investigation and to suspend the process of signing Arbitration Submission Agreement for a special local arbitration.

The tariff adjustment applications were filed with Nepra on Feb 17, 2021 which held a hearing on the matter on March 3, 2021. Nepra announced determinations of IPPs on the established Generation Policy 2002 on April 2, 2021 after which payment to these IPPs was due as their tariffs were revised.

The Power Division argues that since NAB is apparently conducting investigation into the issue of excess profitability and this matter relates to IPPs of Power Policy 2002, it would be appropriate to wait for the conclusion of the investigations before proceeding with payments.

KE additional supply

The ECC also takes up approval for arrangement of additional power from the National Transmission & Dispatch Company (NTDC) to K-Electric. The additional power supply of about 1,450MW is based on decision of the Cabinet Committee on Energy.

The first tranche was of 450MW that has already been linked to KE but the instant issue is that of the payments. KE wants the NTDC to adjust its bill on account of power supply against subsidy payable by the Ministry of Finance.

The Power Division has argued that power companies have to make payments to fuel suppliers and power suppliers including IPPs and delay in payments attracts late payment surcharge. “KE should settle its matter with the Ministry of Finance and ensure payments to NTDC on standalone basis against the power supply without any linkage to the ministry’s disbursements,” an official said.

Subsidy principles

The ECC would also consider setting new principles for subsidised power supply to consumers to ensure targeted subsidy under covenant with the lending agencies particularly the World Bank. Some of the key principles include that the high consumption consumers should continue paying similar rates in summer and winter irrespective of drop in consumption in winter and increase in summers.

Secondly, the world bank wants the government to end the first slab benefit to consumers using more than 300 units per month consumption while the subsidised rates should be limited only to 200 units (bottom 40pc) to protect them from price hike and ensure their payments through BISP data.

Chinese investors

The ECC would take up tax discounts on payments to Chinese (Offshore) supply contractors — China Three Gorges Corporation as main sponsor was developing 1,124 MW Kohala Hydropower Project (KHCL) located on river Jhelum in Azad Jammu & Kashmir (AJ&K) and China Gezhouba Group Company Limited as main sponsor developing 700.7 MW Azad Pattan Hydropower Project.