BOL EXCLUSIVE: Kapco seeks 10-year extension in generation licence, power purchase agreement

Javed MirzaWeb Editor

07th Jul, 2021. 04:48 pm

KARACHI: The Kot Addu Power Company Limited (Kapco) has approached the National Electric Power Regulatory Authority (Nepra), seeking 10-year extension in the generation licence of its 100MW plant, which is set to expire on September 21, 2021, an official document showed.

The Kapco’s existing licence had a term of 17 years and the company plans to extend the term of the licence for another 10 years.

The company submitted before Nepra that the proposed extension aims at ensuring the generation licence caters to the extension in the terms of Power Purchase Agreement (PPA) as agreed in the third amendment of the agreement.

To recall, the Federal Cabinet in July 2019 opposed the renewal of power purchase agreements with the independent power producers (IPPs) having 5,000MW generation capacity. The proposal was submitted by then special assistant to the prime minister on petroleum division Nadeem Babar to the cabinet, chaired by Prime Minister Imran Khan.

“[The] power purchase agreements with the IPPs, including Kapco and Hubco are going to expire in [the] coming years and the government will not renew the agreements,” Babar had told the media.

Kapco noted in its latest financial report that in line with the terms and conditions of the power purchase agreement, the company had taken up the matter for renewal/extension or revision of it with the Water and Power Development Authority (Wapda) and other relevant quarters of the government.

Due to the expiry of the current power purchase agreement, a material uncertainty exists that may cast significant doubt on the company’s ability to continue as a concern beyond September 2021.

On June 3, 2020, the government formed a negotiation committee to initiate discussion with the independent power producers on various matters, including tariff concessions and other terms and conditions and also to coordinate with other government institutions, including the Ministry of Energy, Central Power Purchasing Agency Guarantee Limited (CPPAG), Wapda, Nepra, National Transmission and Dispatch Company (NTDC), etc., for this purpose.

After several discussions with the committee, a memorandum of understanding (MoU) was signed on August 19, 2020. Subsequent to the MoU, the government constituted the implementation committee to finalise the binding agreement based on the MoU.

After several discussions with the implementation committee, Wapda signed the third amendment to the PPA and Master Agreement on February 11, 2021. Pursuant to the terms of these agreements, the outages due to fuel shortage during the period 2008/16 will be treated as other force majeure events under the PPA and, consequently, the existing term of PPA will be extended by 16 months

During this extended period of 16 months, Kapco agrees to waive off any right to receive the capacity payments in lieu of the capacity payments already received during the outage period. However, during this extended period, the company will receive energy payments and other pass-through items.

Further, as per the terms of the Master Agreement, the Water and Power Development Authority would consent to the extension of the power purchase agreement for an additional term; following the expiry of the extended term. Kapco will also have the option to sell electricity to other bulk power consumers through wheeling arrangement.

Moreover, keeping in view the plant’s operations and maintenance as per the best utility practices and its significance to Wapda due to its certain distinct capabilities and strategic location in the middle of the country, the management is optimistic about the potential of the plant to be operational at varying levels of generation vis-a-vis the anticipated technical and commercial regime beyond the extended term.

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