CCOP to deliberate on incentives
As per the transaction structure, the company may be split into two separate companies. PHOTO: FILE
The Ministry of Privatization has placed a set of recommendations, including tax exemptions, before the Cabinet Committee on Privatization (CCOP) for approval in a bid to move on privatisation status of National Power Parks Management Company Limited (NPPMCL).
In a recent meeting, the ministry informed the cabinet body that several meetings of the sub-committee have been held to resolve the issues relating to privatisation of NPPMCL and deliberations were submitted.
The revised project documents and changes in Risk Matrix-Power Discussions were held with stakeholders to incorporate decision of the Cabinet Committee on Energy (CCoE) dated September 18, 2020 regarding change in 65% take or pay commitment.
The revised arrangement has been agreed, involving Central Power Purchasing Agency-Guarantee (CPPA-G) providing indicative annual production plan and monthly production plan at least 75 days before the start of each month and Sui Northern Gas Pipelines (SNGPL) to accept firm orders picked by the NPPMCL 75 days in advance for a particular month.
The project documents ie Power Purchase Agreement, Gas Supply Agreement and Implementation Agreement, have been shared with the stakeholders after incorporating the changes that the Power and Petroleum Divisions accordingly agreed to submit the summary for approval of CCoE.
Historically, Gas Calorific Value (CCV) for the gas provided to the said power plants was around 1,000 Btu. The Petroleum Division has now confirmed the GCV value for future up to 1,040 Btu.
NPPMCL will have to obtain the estimates of the capital expenditure to accommodate gas with revised GCV. This additional cost regarding charge in GCV value is proposed to be borne by either NPPMCL or SNGPL or in the alternative, the bidders will adjust this amount in their bid evaluation.
Provision of debt financing in tariff determined by Nepra
The National Electric Regulatory Authority (Nepra) has allowed local debt financing at KIBOR 18% in tariff determination. During the meetings, Nepra was asked to clarify whether foreign debt financing, as per Nepra guidelines ie LIBOR 45% would apply for potential bidders or not. Nepra indicates that the bidders may arrange foreign debt financing within the limit of KIBOR+185 and any currency exchange rate risk shall be borne by the bidder(s).
The bidders, however, require multilaterals to provide financing for the transaction. Consequent upon clear stance of Nepra, the bidders may either opt for local debt financing within the prescribed limits or may avail foreign debt financing, bearing foreign currency exchange risk at their own and in that event the bidder(s) will make adjustment in their evaluation.
As another option, NPPMCL may replace the debt of government of Pakistan by borrowing from the local/international banks before privatisation. Meetings are being scheduled with the Iocal banks to explore the possibility of debt financing.
Income tax issues
Under Section 132 of Income Tax Ordinance, 2001, all Independent Power Producers (IPPs) are income tax exempted, while being a public sector power generation company, NPPMCL, is net entitled for income tax exemption. In this connection, the Federal Board of Revenue (FBR) has sought advice from Law and Justice Division whether the company will be entitled for tax exemption by change of ownership or not.
As per the transaction structure, the company may be split into two separate companies. Section 132 of the Income Tax Ordinance, 2001 does not apply to IPPs which are formed after split. In the discussion of the sub-committee, it has been recommended that the FBR and Finance Division will resolve the issue by granting tax exemption under Section 132 of the Tax Ordinance 2001, keeping the International Monetary Fund (IMF) in loop.
NPPMCL is availing tax credit under Section 65D of Income Tax Ordinance, 2001 on the basis of its capital structure, which is to be changed as per tariff determination. On change of capital structure, the debt equity ratio of 70:30 the credit will no longer be availed by NPPMCL and tax credit already availed (about Rs8.2 billion) will have to be deposited by NPPMCL.
The company has liquidity problems and, in such case, the government or CPPA-G will have to arrange the amount for payment of the past tax liability. Minister for finance has tasked the Finance Division secretary and FBR to resolve this issue at the earliest.
The Ministry of Privatization requested the CCOP to deliberate and decide on the options given and tax exemptions.
The CCOP considered the summary submitted by the Ministry of Privatization titled “Privatization status of National Power Parks Management Company Limited (NPPMCL)” and directed the ministry to place all issues related to privatisation of NPPMCL before the committee already constituted to finalise recommendations thereon and submit the same to the CCOP for consideration.
Published in The Express Tribune, January 6th, 2021.
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