Government Signs a New Agreement with IPPs to Reduce Circular Debt

In a major breakthrough, the government has signed a new agreement with the independent power producers (IPPs) under which the cost of electricity generation will be brought down and circular debt would be reduced.

This was announced by the Prime Minister Imran Khan on Twitter.

According to a report by Business Recorder, the MoU had the following points agreed upon between the parties.

The parties recognize that payment of receivables of IPPs is an integral part of this MoU. The Power Purchaser and GOP shall devise a mechanism for payment of the outstanding receivables within the agreed time period which shall be reflected in the final agreement.

The report further added that the existing capacity payments and variable O&M shall be reduced by 11% and the USD exchange rate and US CPI indexations shall be discontinued on 50% of the reduced capacity payment, which shall be fixed at National Bank of Pakistan’s TT/OD selling PKR/USD exchange rate as on August 12, 2020, without any local or international currency indexation or inflation adjustment for the future.

In lieu of the tariff reductions herein, any heat rate sharing by any IPP as per its existing arrangement shall cease to exist. USD exchange rate and US CPI indexations on reduced variable O&M and 50% of the reduced capacity payment shall continue as per the existing arrangement.

The parties shall look into the possibility of termination of plants considering their commercial and technical viability. The parties acknowledge that the IPPs predate the creation of the Nepra regime.

The Government of Pakistan is planning to create competitive power markets. Without prejudice to the terms of its generation license, the IPP shall actively support and participate in the Competitive Trading Arrangement when it is implemented and becomes fully operational.

The power purchaser shall ensure adherence to its contractual obligations, and GOP and power purchaser shall work towards resolution of the Expert’s adjudication for the relevant IPPs. The parties agree that nothing contained in this MoU shall be deemed or be construed as an admission of liability, wrongdoing, or improper action on the part of the IPPs. 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.

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