Hubco Asks CPPA-G to Fix Payment “Disparity” Issue

ISLAMABAD: The bitterness between M/s Hubco Power Company (Hubco) and Central Power Purchasing Agency-Guaranteed (CPPA-G) over the alleged disparity in the allocation of payments to different IPPs is growing with each passing day.

Power Company CEO Kamran Kamal responded to CPPA-G CEO in his letter dated August 16, 2022, expressing his disappointment with CPPA-G’s response to his letter, adding that unfortunately, although agreed to address the disparity in recent meetings, CPPA-G continues to give Hubco biased treatment in terms of payment allocation and provided irrelevant apologies to cover up its grossly unfair and discriminatory actions.

According to him, at the end of July 2022, Hubco’s unpaid invoices were nine months overdue, compared to 1 to 3 months for similar IPPs.

He affirmed that the amount of debts of Hubco amounted to Rs 43 billion including Rs 6 billion up to 1 month, Rs 9 billion up to 1-2 months, Rs 5 billion up to 2-3 months, Rs 12 billion up to 3-6 months and Rs 11 billion up to 6-9 months. This stock excludes the disputed amount of Rs 11.5 billion.

Kapco’s stock of receivables was Rs 46 billion, of which Rs 15 billion up to 1 month, Rs 27 billion 1-2 months, Rs 4 billion 2-3 months but nothing is outstanding for 3-6 months and 6-9 months. Power utility Lalpir’s stock of claims is Rs 1 billion while Pakgen’s pending claims are Rs 8 billion for 1 month and Rs 3 billion for 1-2 months, totaling Rs 11 billion.

“Fairness” of payments: CPPA-G, Hubco locks the horns

CEO Hubco argued that the CPPA-G tying payments to the Economic Merit Order (EMO) is grossly misplaced and not backed by any agreement, adding that EMO only relates to energy payments whereas that under the Power Purchase Agreement (PPA), Hubco is also entitled to capacity payments based on its availability for which CAPP-G is also required to make timely payments . To disregard capacity payments because a plant is not shipped is, in fact, contrary to the spirit of the PPA.

He sent the following par ative response to CPPA-G’s comments: (i) while the age of outstanding claims in Hubco’s letter includes the disputed amount of Rs. 11.525 billion, even excluding the amount, his claims expired are considerably higher than similar PPIs in terms of aging, i.e. 9 months compared to 1 to 3 months for similar PPIs; (ii) Payments of 110% to 118% of verified invoices during the years 2020-21 and 2021-22 were mainly due to payments under the PPA amendment agreement which were also made to other IPP and do not solve the disparity problem.

The comparative age of NPLs for similar IPPs should also be presented for meaningful analysis. CFO/CEO CPPA-G may recall that under the PPA amendment agreement, outstanding balances as of November 30, 2020 were paid to IPPs in two installments of 40% and 60%, which brought IPPs to par in terms of payout percentages and aging. Hubco does not understand afterwards how it can have a late aging of about 9 months when other similar PPIs have only 1-3 months aging.

At the June 2022 meeting, it was discussed and agreed that Hubco was behind in terms of payments compared to other IPPs and we were assured that this disparity would be resolved by September 2022. Unfortunately, the significant difference in aging lagging between Hubco and the other IPPs persists, which forces us to raise this question again; (iii) the application of FIFO by sector will not conflict with the economic merit order system, since all IPPs will have better visibility when their invoices are paid and can therefore better plan their cash flows and their transactions with their working capital lines accordingly; (iv) the implementation of FIFO by sector will bring fairness and transparency in the payment system and solve the problem of payment disparity as it discourages the exercise of discretionary power. On the other hand, exercising discretion and tying payments to shipments has created inefficiencies and complacency leading to payment disparity.

Concluding the letter, CEO Hubco stated that pursuant to the PPA, CPPA-G is bound by a contractual obligation to make timely payments. Hubco has always supported CPPA-G and GoP in managing the energy system and whenever requested by CPPA-G and GoP, Hubco has sacrificed its own interest for the larger national interest. However, the current disparity in payments has forced the company to express serious concerns and reservations.

“Hubco expects to be treated fairly and requests that the mismatch issue be resolved by the end of this quarter, as engaged by CPPA-G to align its lagging aging with other similar IPPs,” he said, adding that according to company estimates. , CPPA-G must pay an amount of 23-25 ​​billion rupees immediately to put Hubco on par with similar IPPs.

Copyright Business Recorder, 2022

About Matthew R. Dailey

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