. .

1_popup_home.gif (1391 bytes) f&m.gif (7233 bytes)

IPPs threaten legal action

  1. Dollar trade suspended
  2. November 16 — Countdown for loan defaulters
  3. IIPPs threaten legal action
  4. SLIC yet to release its 1998 accounts

Demand compensation for loss they face due to delayed provision of foreign exchange and mismatch in dollar/rupee exchange rates

Special Correspondent, Islamabad
Oct 25 - 31, 1999

Independent Power Producers have threatened the Government of Pakistan with legal action and even arbitration if they are not adequately compensated for the delayed provisions of foreign exchange.

IPPs have been guaranteed foreign exchange for conversion and repatriation at the State Bank of Pakistan's most favourable rate to meet the requirements of debt servicing, dividend pay-outs and other expenses. The arrangement is guaranteed in March 1994 Power Policy and the Implementation Agreements (IAs) signed by the Government of Pakistan with the Independent Power Producers. Since May 1998, IPPs are confronted with the problem of non-availability of foreign exchange.

On account of delayed provision of foreign exchange, certain IPPs have served notices of breach of Implementation Agreements and GOP default and have claimed compensation for default interest payments to their lenders. Under the Power Purchase Agreements signed by Water and Power Development Authority (WAPDA) and Karachi Electric Supply Corporation (KESC) with IPPs, various components of tariff payable by WAPDA/KESC for purchase of electricity are indexed to the official dollar/rupee exchange rate announced by the SBP.

During the period from May 1998 to May 1999, IPPs were exposed to a mismatch between (a) the SBP's Selling TT&OD rate (used for indexation by WAPDA/KESC under the PPAs, published daily by the SBP), and (b) the composite rate (the actual rate used by the banks for conversion and repatriation of IPP's funds). Therefore, some of the IPPs have served various breaches and default notices on GOP under the IAs and have demanded compensation for the loss they have suffered on account of this mismatch of rates.

Yet another problem arose when market based unified rate system was introduced with effect from May 19, 1999. In case an index is not available, the PPAs envisage that WAPDA/KESC and IPPs will identify an alternative index and, if they fail, by an expert. Certain alternatives available for the purpose of indexation of tariff are: TT&OD Selling Rate announced by National Bank of Pakistan (NBP) or average of the rates offered by a pre-determined number of banks. Some IPPs have demanded the use of NBP's rate whereas WAPDA has suggested the minimum of the TT&OD selling rates announced by the specified banks. IPP's breach and default notices and demand for compensation for loss due to delayed provision of foreign exchange and mismatch of exchange rates were contested and rejected by PPIB. Some IPPs have threatened legal action including arbitration if their demand for compensation is not met.

Sources say that the Ministry of Finance has endorsed the advice of the SBP that for purposes of indexation of IPPs' tariff under the PPAs from May 19, 1999 onwards, the NBP's TT&OD Selling Rate of US dollar for Pak rupee, as published by NBP in its Exchange Rate Bulletin, may be adopted. Whereas for the period prior to May 19, 1999, the official exchange rate announced by SBP has been recommended. But some IPPs have expressed their intention to claim compensation for the loss sustained by them due to the mismatch between the official rate and the composite rate announced by the SBP and so have threatened legal action.

The Ministry of Water and Power has recommended that NBP's TT&OD Selling Rate of US dollar (or Japanese yen for the IPPs indexed to yen) for Pak rupee as published by NBP in its Exchange Rate Bulletin may be adopted for indexation of tariff components under the PPAs with effect from May 19, 1999. For the pre May 19, 1999 period, SBP's TT&OD Selling rate may be used for indexation. Moreover, the Power Ministry has said that the Ministry of Finance may consider, on case to case basis, matters relating to any claims by IPPs for compensation for loss they face due to delayed provision of foreign exchange and mismatch in exchange rates.