Tuesday, May 30, 2023
HomeEnergyThe government and Wind Power Producers Signed MoU

The government and Wind Power Producers Signed MoU

A formal memorandum of understanding has been signed between the government and wind power producers that aims to increase term of plants by the next five years.

The signed MoU clause stated, “Have agreed to alter their existing contractual arrangements to the extent of, and strictly with respect to, the matters listed under the MoU.”

The government will have to amend the Alternative & Renewable Energy Policy (AREP) 2020, approved by the Council of Common Interests earlier this month for these conditions to materialize. In the meantime, some other conditions are subject to uncertainty, too.

The MOU says the WPPs have collectively agreed to make such compromises on a prospective basis, in the greater national interest. We will negotiate with their borrowers and make every effort to stretch the debt-tenor by five years, reduce the Libor spread by 50-75 basis points and reduce the Kibor spread by 100-125bps.

Here are the clauses of the signed Memorandum of understanding:
The government shall support the WPPs in replacing their current Kibor-based long-term domestic debt with the State Bank of Pakistan’s refinancing facility for renewable projects.

The WPPs shall coordinate with their operations and maintenance (O&M) operators and make all efforts to reduce their O&M costs by 20-25 per cent. They would also reduce their insurance during operations from existing arrangement to actual, subject to a cap of 0.7pc of engineering, procurement and construction cost approved under the respective tariff.

For WPPs developed under the upfront tariff regime of 2015, tariff sharing will remain the same for net annual plant capacity factor (NAPF) till the NAPF approved in the respective lenders’ technical advisor report (P90 level). For NAPF above the P90 level, the tariff shall be reduced to 50pc for the WPP.

In future, the return on equity (RoE) including RoE during construction shall be reduced to 13pc per annum. The miscalculation of internal rate of return, on account of periodicity of payments, has been addressed through this reduction in return component.

The committee shall recommend the government to explore the possibility of allowing the existing WPPs to develop hybrid wind-solar projects at the existing wind farm sites. For this, the AREP 2020 would have to be amended and hence may remain a wish.
The government committee acknowledged that getting relief from lenders and the O&M operator will require support from the government which shall be provided to the WPPs.

For WPPs where delayed payment rate (DPR) is set at Kibor plus 4.5pc in their existing contractual arrangements, the DPR in all future invoices shall be reduced to Kibor plus 2pc for the first 60 days after the due date, and thereafter at Kibor plus 4.5pc

All invoices the NTDC would ensure that payments including the DPR invoices follow the first in first out payment principle under the Energy Purchase Agreement.

The mechanism for cessation or compensation of curtailment shall be devised by the WPPs, NTDC and the government collectively whereas the mechanism for outstanding receivables shall be devised by the NTDC and government, each of which shall be reflected in the final agreements with each WPP. The NTDC and government would have to ensure adherence to its contractual obligations.

Nothing contained in the signed MoU shall be deemed or be construed as an admission liability, wrong doing or improper action on the part of the WPPs.

Once Nepra, Federal Cabinet and WPPs Board of Directors, shareholders and lenders approve the terms of the 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 the Central Power Purchasing Agreement (G), to be followed by legal documentation to reflect the amendments needed in the tariff and relevant agreements.



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