Nine IPPs which recently sought international arbitration are: (i) Atlas Power Limited, ii) Halmore Power Generation Company (Pvt) Limited; (iii) Liberty Power Tech Limited;(iv) Nishat Chunian Power Limited; (v) Nishat Power Limited;(vi) Orient Power Company (Pvt) Limited; (vii) Saif Power Limited;(viii) Sapphire Electric Company Limited; and (ix) Hub Power Company Limited.
The dispute relates to a payment of Rs 329 billion released to all IPPs in June 2013 by the incumbent government aimed at clearing the claims of private generation companies due to which the entire power sector was choked. The payment to IPPs is still under discussion at different fora as former Auditor General of Pakistan, Buland Akhtar Rana, claimed that payment made to IPPs was illegal. The IPPs claimed payment of Rs 340 billion of which Rs 11 billion were challenged by the NTDC.
According to the IPPs, a dispute arose upon the delay and non-payment under the Power Purchase Agreement (PPA) of the amounts due by the NTDC- power purchaser, resulting in the company's inability to procure adequate fuel in order to declare their complex available at the contract capacity. However, for the period that the IPPs were unable to declare its complex at the contract capacity, it invoiced the NTDC for the capacity payment at contract capacity - the deemed capacity.
In making payments towards the invoice(s), the NTDC deducted certain amounts for the deemed capacity, alleging that the IPPs could not claim the invoiced amount(s) to this extent for not having made this capacity actually available to the power purchaser. The IPPs argue that the NTDC's breach of the PPA has harmed the IPPs and caused them to suffer losses by preventing them from operating the complex at the contract capacity and thus depriving the IPPs of the related capacity payments. In the circumstances, the IPPs are entitled at a bare minimum to be compensated for the capacity payments along with interest/mark up and damages.
NTDC contested the IPP's claims, alleging that it has validly withheld the amounts for which the IPPs "could neither make available the capacity nor raise the payment dispute within the stipulated period of time" and that "the PPA does not allow the IPPs to seek capacity payments calculated on the basis of the total/deemed generating capacity of the complex or during the currency of force majeure event". The dispute was referred for expert mediation under section 18.2 of the PPA to Justice Sair Ali(retired) for determination. The expert gave decision in favour of the power producers and granted their claim regarding the capacity payments save their claim of mark-up on the outstanding capacity payments.
According to sources, after months of announcement, NTDC argues that the arbitrator's determination is unjustified and is planning to challenge its determination before London Court of International Arbitration (LCIA).
The sources maintained that NTDC will engage an international firm or counsel to represent it before the arbitration tribunal. However, it is yet to be decided whether the federal government or NTDC will bear financial burden of international law firm which will later be made part of tariff. An insider in IPPs told Business Recorder that the IPPs London-based law firm M/s Freshfields has sent a letter to NTDC about international arbitration.
"IPPs law firm has simply asked the international arbitrators to order the NTDC to make the payment determined by a mutually agreed Pakistani expert," he added. He maintained that the amount of Rs 11 billion was genuine which the NTDC stopped on the pretext that the plants did not operate and questioned as to how the plant could operate when the power purchaser did not pay for fuel for several years due to which all the plants shut down.
He cited the PPA which says it will be a reciprocal arrangement, ie, IPPs have obligation to operate plants whereas NTDC has to pay working capital. In reply to another question, he further added that the name of Justice Sair Ali (retired) was nominated by the federal government who gave a decision on merit. However, he did not allow interest to IPPs.