This memorandum of understanding outlines agreed upon terms between the Committee for negotiations with Independent Private Power Producers and the IPPs representing 2002 Power Policy projects. Key points include sharing future savings in fuel and O&M costs between purchasers and IPPs on a sliding scale, conducting an independent heat rate test, reducing delayed payment rates, setting new equity returns, and developing a mechanism for repayment of outstanding receivables within an agreed upon time period. The terms are subject to regulatory and corporate approvals and aim to alter existing contractual arrangements on specified matters for a period of six months or until a detailed agreement is signed.
This memorandum of understanding outlines agreed upon terms between the Committee for negotiations with Independent Private Power Producers and the IPPs representing 2002 Power Policy projects. Key points include sharing future savings in fuel and O&M costs between purchasers and IPPs on a sliding scale, conducting an independent heat rate test, reducing delayed payment rates, setting new equity returns, and developing a mechanism for repayment of outstanding receivables within an agreed upon time period. The terms are subject to regulatory and corporate approvals and aim to alter existing contractual arrangements on specified matters for a period of six months or until a detailed agreement is signed.
This memorandum of understanding outlines agreed upon terms between the Committee for negotiations with Independent Private Power Producers and the IPPs representing 2002 Power Policy projects. Key points include sharing future savings in fuel and O&M costs between purchasers and IPPs on a sliding scale, conducting an independent heat rate test, reducing delayed payment rates, setting new equity returns, and developing a mechanism for repayment of outstanding receivables within an agreed upon time period. The terms are subject to regulatory and corporate approvals and aim to alter existing contractual arrangements on specified matters for a period of six months or until a detailed agreement is signed.
This memorandum of understanding outlines agreed upon terms between the Committee for negotiations with Independent Private Power Producers and the IPPs representing 2002 Power Policy projects. Key points include sharing future savings in fuel and O&M costs between purchasers and IPPs on a sliding scale, conducting an independent heat rate test, reducing delayed payment rates, setting new equity returns, and developing a mechanism for repayment of outstanding receivables within an agreed upon time period. The terms are subject to regulatory and corporate approvals and aim to alter existing contractual arrangements on specified matters for a period of six months or until a detailed agreement is signed.
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MEMORANDUM OF UNDERSTANDING
The Committee for negotiations with Independent Private Power Producers (“IPPs”), notified by Government of Pakistan vide notification number F.No.IPPs- 1(12)/2019-20 dated 3rd June, 2020 (the “Committee”) and the IPPs representing the 2002 Power Policy projects, (collectively referred to as the “Parties”) had several rounds of discussions and the Parties have agreed to alter their existing contractual arrangements to the extent of, and strictly with respect to, the matters listed under this Memorandum of Understanding (“MoU”). The terms of this MoU are subject to the approval of National Electric Power Regulatory Authority (“NEPRA”), Federal Cabinet and IPPs’ Board of Directors and other necessary corporate approvals.
1. [.]has, in the larger national interest, voluntarily agreed to provide concessions
considering the facts that a significant period has passed since its Commercial Operations Date (“CoD”). 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. 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 IPP. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference shall be carried over to the future years. 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 IPP respectively, after accounting for any reserves created, or to be created for major overhaul if the reserve for major overhaul remains unutilized, it shall be shared in the ratio of 60:40 between the power purchaser and the IPP. In case the major overhaul expense exceeds the reserves available at the time of major overhaul, the difference shall be carried over to the future years. However, power purchaser shall not share fuel, 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 GoP 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 Gas Supply Agreement is signed with an entity with significant ownership of GoP, same DPR rates shall be payable by the IPP to Gas supplier. Further, for all invoices, the power purchaser shall ensure that payments follow the PPA mandated FIFO payment principle. 7. In future, for foreign equity investment presently registered with SBP, the Return on Equity (“RoE”) including Return on Equity During Construction (“RoEDC”) shall be 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 USD/PKR exchange rate of PKR 148/USD, with no future USD indexation. The miscalculation of IRR, on account of periodicity of payments, has been addressed through 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 each IPP. In the interim period, CPPA (G) shall work towards providing access to the bilateral market at the earliest. 9. In order to assess if a company has made any excess profits, the reconciled numbers between the Committee and the IPPs engaged in this exercise, 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 determination and PPA, and provide for a mechanism for recoveries, where applicable. 10. 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 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. 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 relevant agreements. 13. This MoU is valid for six months from the date hereof and shall stand terminated on signing of the detailed agreement referred to in clause 12 above.
