The Hub Power Company Limited (HUBCO) and the Central Power Purchasing Agency [CPPA] (Guarantee) Limited (Power Purchaser) have initialed an agreement in furtherance of the Memorandum of Understanding (MoU) dated 21 August 2020, according to a notification issued to the Pakistan Stock Exchange (PSX).
This comes a week after Hub Power’s subsidiary – Narowal Energy – entered the same agreement with the CPPA.
Under the agreement between the HUBCO and the CPPA, the payment of overdue receivables is an integral part of it, and the payment mechanism envisaged is two installments, with 40 percent of the overdue receivables payable within 30 business days of signing it (comprising a third of cash and two-thirds of the financial instruments of the Pakistan Investment Bonds (PIBs) and Sukuks), and the remaining 60 percent payable six months thereafter through the same method as that of the first installment.
The notification mentioned that the payment of all the invoices will be made in order of its submission so that invoices that have been outstanding for the longest period of time (in whole or in part) may be paid first.
At the request of the Government of Pakistan, the parties have agreed to reduce the existing Fixed Operating Costs Element by 11 percent in consideration of the larger national interest and sectoral sustainability, while maintaining the existing arrangement of indexations.
At the same time, the parties have also agreed to discontinue the US$ exchange rate and the US CPI indexation on the Project Company Equity, and to fix the same on the National Bank of Pakistan’s TT/OD selling PKR/USD exchange rate prevalent since 21 August 2020 and the US CPI for the month of August 2020.
Until the current exchange rate reaches that of 21 August 2020, which was PKR 168.60/USD, the existing arrangement under the Power Purchase Agreement (PPA) for the current half-year will be applicable for future billing.
According to the notification, the parties have agreed to engage, without delay, in the signing of the agreement in good faith negotiations and discussion, and to use their best endeavors to achieve a premature termination of the PPA which will be mutually beneficial, resulting in compensation for the company while saving the GOP substantial sums in lieu of the capacity payments until the expiry of the PPA.
In parallel, the parties have also agreed that certain outstanding dispute(s) will be resolved through arbitration under the PPA.
The terms of the agreement are subject to the approval of the Board of Directors of the HUBCO, the Federal Cabinet, and the execution of a final binding agreement.