Power Division and NJHPC (Neelum-Jhelum Hydropower Company) have signed a formal purchase agreement (PPA) on involvement by the PM office. The purpose of agreement is to save Neelum-Jhelum Hydropower Company (NJHPC) from default. The power project of Rs. 510bn had attained 969MW generation capacity in August 2018. Since then the project is supplying electricity to national grid without any payment. This has built a circular debt of about Rs. 75bn because of non – signing of agreement by CPPA and NJHPC.
Brig Mohammad Zareen, chief executive officer of NJHPC, warned about the political, financial and reputation risks for the government of the nonpayment ,in meetings with the top functionaries. The reason is that as a result of delayed payments, the government will be forced to increase the customer tariff for clearing its Rs. 75 bn backlog as well as to avoid the guarantees of WAPDA and government to default.
A senior official told reporters about the intervention by the Prime Minister Office and said that PM office asked the power division to resolve the dispute at the earliest. Irfan Ali ; Power division secretary heard viewpoints of both the CPPA & NJHPC. After that a meeting of the board of directors of CPPA was held to approve the signing of the Power Purchase Agreement between the two entities.
Subject to vetting of PPA by legal experts, both sides are expected to sign the agreement this week
It has been earlier reported by the NJHPC that if the energy payments are not started within a month, WAPDA, government and the company would be defaulted since unaccounted units are being used by the power sector to show line losses reduction.
The CEO of NJHPC has reported on 27 November; “If revenue from the CPPA does not commence by December 2019, NJHPC/Wapda/GoP shall go into default due to back-to-back guarantee, apart from NJHPC not meeting the routine maintenance expense”.
He also reported that as a result of shelling on dam’s site by the Indian army on July 30 and Oct 19-20 & 24 this year, the Chinese contractor has left and is not willing to return. The project had attained 99.6% completion at that time and only some minor works were outstanding then. He added that the NJHPC has discussed the matter with foreign ministry and requested them to discuss the same with Beijing and they hope that the contractor will soon resume the project.
The CEO briefed that the annual debt servicing liability of the company amounts Rs. 50 billions and economic affairs division is sending letters for payment to external lenders every month. He said “I will not have the funds to even pay for the salaries after December”. He added that currently we have raised Rs100bn to pay debt servicing, salaries & other expenses.
Brig Zareen said the NEPRA (National Electric Power Regulatory Authority) had given the an interim tariff to NJHPC at a rate of Rs. 5.9180 per KWH for 1 year notified on 8th March. However not a single penny has been paid to the company by the CPPA against supply of more than 6 billion units (KWH) to the national grid.
Before a parliamentary committee, The NJHPC recently testified that the PPA had been lying with CPPA since July this year for signatures. The delay in signing has resulted in non payment for energy supplied NJHPC to date. NEPRA also had not paid anything from the revised interim tariff of Rs9.1184 per. Application for revised final tariff application is under process currently.
Supply of 6 billion units to the power sector by the NJHPC also remained unaccounted for so far
While discussing the matter with the Senate Committee on Planning; NJHPC explained that CCPA was reluctant to sign the agreement with a stance that the tariff charged by the NJHPC should be clubbed with that of WAPDA ignoring the fact that NJHPC is an independent company registered with SECP and its separate tariff has been approved by the power regulator.
Brig Zareen explained that it is not only impractical to combine tariffs with that of WAPDA but also it would involve serious taxation and legal consequences. The company is availing some tax exemptions which WAPDA is not availing. On the other hand WAPDA already owes an amount of Rs. 200 billion to CCPA.
Resulting from these issues, payments for water use charge to AJK amounting Rs. 1.10 per unit are not being made which is affecting their budgets. Neelum – Jehlum surcharge of about Rs. 60 billion have been recovered from the customers by the company. However Rs. 60 billion from CCPA for the energy sold to them is still pending.
Approved cost for the 969MW project was Rs506bn, but it was completed at a cost of Rs 420 bn.