The government resolves disputes with KE

ECC approves transactions and sends positive signals to Saudi investors and Shanghai Electric

ISLAMABAD:

The caretaker government on Friday approved the finalization of four agreements with the country's largest private power company, K-Electric (KE), ending years of disputes over payment for electricity purchases and supply of electricity. This decision sends a positive signal to foreign investors.

The Economic Coordination Committee of the Cabinet approved the signing of the Power Purchase Agency Agreement (PPAA), Interconnection Agreement (ICA), Tariff Differential Subsidy (TDS) Agreement and the mediation agreement. These agreements are expected to improve the relationship between the entity and the federal government authorities, to ensure better services to Karachi and parts of Balochistan.

The ECC decided to approve the proposal of the Energy Department to sign the draft PPAA, ICA, TDA and mediation agreements between KE and Pakistani government entities, according to a statement issued by the Ministry of Finance.

These agreements were finalized about three years ago and were also reviewed by a few committees. But in the past, no government had the courage to approve these agreements. Energy Minister Mohammad Ali played a major role in securing these approvals, even though another minister tried to derail them.

Read more: https://www.pknews360.com/

The approval and signing of these agreements will also address the concerns of Saudi investors who acquired stakes 18 years ago. The end of the trade conflict could also facilitate Shanghai Electric's acquisition of KE. Finance Minister Dr Shamshad Akhtar presided over the ECC meeting.

Under the PPAA agreement, the federal government guaranteed the supply of 1,000 megawatts of electricity to KE for ten years, and an additional 1,000 MW would be provided subject to availability.

KE has also submitted a plan to produce more than 3,000 MW of electricity. The plan envisages the addition of a cumulative base load capacity of 3,000 MW as future capacity addition to be achieved over the next 10 years in IPP mode. But the company estimates that its needs can be met by an expansion of 1,500 MW. The company is also investing in the 660 MW unit of the Jamshoro power plant.

The mediation agreement will pave the way for the resolution of the dispute over late payment surcharges on KE's electricity purchases from the government. Former Attorney General of Pakistan Ashtar Ausaf is expected to play the role of mediator.

The two parties have already reached an agreement on KE's payment of electricity principal and delay in the payment of subsidies by the government. The company has not paid about Rs 240 billion to the government and also claims that the government has not authorized about Rs 220 billion in subsidies.

Due to the expiry of the power purchase agreement, the accounts payable and receivables situation between KE and the government started to deteriorate because KE stopped paying on the basis that these payments would be settled with the differential subsidy rate receivable from the government, but which was not paid to KE.

If the government postpones subsidy payments in the future, the company will be able to make adjustments in its payments to the government for energy purchases after two months. Similarly, in case of late payment, the company would also be entitled to late payment surcharge, thus equivalent to its status with that of the government in this regard.

The Finance Ministry said the ECC has also directed the Electricity Department to refer the matter related to the Renewable Power Generation Improvement Plan to the Ministerial Committee on Energy, which should focus on reducing the cost of electricity as well as the resulting subsidies.

Although finalized a few years ago, the parties could not move forward with these agreements due to disagreements over the amount of fixed capacity for backbone provision to the national grid, the lack of reconciliation of accounts receivable and payable and interest costs, the way forward to resolve legal and regulatory issues and related matters, the ECC was informed.

A task force headed by former Prime Minister Shahid Khaqan Abbasi also decided that reconciliation of outstanding amounts be carried out between the parties from June 30, 2022, based on the duly reconciled audited financial statements of the respective entities. and the resulting reconciliation statements. was agreed by the parties para.

At the recommendation of the Office of the Attorney General, all parties also entered into a draft mediation agreement for the settlement of historical fees del and initiated.

KE will invest in IPP with private financing, either greenfield or industrial site conversions. The most significant intervention concerned the state-owned Jamshoro coal-fired power plant. Unit 1 of the plant is almost ready to run on imported coal and there are plans to convert it to local coal. coal and divert its production to KE.