ISLAMABAD: In a significant move aimed at restructuring the power sector, Pakistan State Oil (PSO) has waived late payment interest charges on fuel supply debts owed by five Independent Power Plants (IPPs) whose agreements with the government have been terminated. These IPPs include HUBCO, Lalpir, Saba Power, ROUSCH, and Atlas Power. The settlement agreements, known as Negotiated Settlement Agreements (NSAs), were reached after extensive negotiations between the Power Division, a government task force, and the IPPs.
As part of the settlement, PSO will receive a principal payment of approximately Rs14.8 billion from the power purchaser, which will be used to offset the accrued late payment interest on HUBCO’s Power Purchase Agreement (PPA) and reverse a previous deduction imposed under an arbitration ruling.
A key outcome of the negotiations is the scheduled transfer of the ROUSCH power plant to the government by December 31, 2024. Built under a Build-Own-Operate-Transfer (BOOT) model, the plant will be handed over to the government for a nominal price of one US dollar, converted to Pakistani rupees. This transfer marks a significant step in the government’s broader strategy to reform the power sector.
Key Settlement Terms
The settlement with the five IPPs includes several important concessions. Notably, no capacity payments will be made beyond October 2024, resulting in considerable savings for the government. The IPPs have also waived all past late payment interest, and no further claims related to expert determinations or arbitration awards will be pursued by either party. In return, the government will fully pay outstanding capacity charges, energy payments, GST, insurance, and other pass-through costs.
Each IPP has specific terms under the settlement:
HUBCO: The company has agreed to waive its Rs17 billion interest claim from an arbitration award related to fuel payments. PSO’s receivables from HUBCO will be assigned to the power purchaser, offsetting the late payment interest, and reversing earlier deductions.
ROUSCH: In addition to transferring its plant, ROUSCH will receive Rs5.5 billion for early termination of operations and maintenance, and Rs2.8 billion for plant preservation until the handover.
Atlas Power: The company has agreed to forgo Rs4.763 billion in operational savings accumulated by September 2024. In return, the government will halt arbitration proceedings related to Atlas Power, which is no longer essential for grid operations.
The Power Division presented the settlements to the Cabinet, which approved the agreements and a technical supplementary grant of Rs308 million for task force expenses. Prime Minister Shehbaz Sharif praised the IPPs for their cooperation in voluntarily terminating their contracts, a move that is expected to lower electricity costs by 70 paisa per unit and save Rs411.16 billion in future payments.
Further settlements with an additional 15 to 20 IPPs are underway as part of a broader effort to restructure the power sector, reduce electricity rates, and improve the country’s economic outlook.
Story by Zafar Bhutta
