Tariff differential subsidy dispute drags on

Ninety-day extension sought to conclude mediation process

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ISLAMABAD:

The mediator has not yet been able to settle a dispute between K-Electric, the government and state-owned companies (SOEs) over the tariff differential subsidy and payables to the private power utility as the Karachi Water and Sewerage Board (KWSB) is reluctant to cooperate with the mediator.

The longstanding dispute has caused dismay among foreign shareholders of KE.

The government had appointed a mediator for clinching an agreement pertaining to KE claims for tariff differential subsidy and payables by different SOEs. KE has to receive the tariff subsidy from the government and payables from the Central Power Purchasing Agency-Guarantee (CPPA-G)/National Transmission and Despatch Company (NTDC), Sui Southern Gas Company (SSGC) and other such companies. But a settlement has not been reached thus far between all stakeholders.

It was informed during a recent meeting of the economic decision-making body that in order to resolve disputes related to KE, the then prime minister had formed a task force on June 10, 2022. The recommendations of the task force included multiple agreements such as power purchase agreements, interconnection agreements and the tariff differential subsidy agreement. These were approved by the federal government in 2023.

Accordingly, a mediation agreement was executed. Clause 2 of the mediation agreement specifies the clauses for mediation including how much are the outstanding receivables of KE that are to be paid by KWSB.

The other dispute is about the amount of tariff differential subsidy owed by the government to KE, including but not limited to any claims made by the power utility, which are pending due to procedural delays.

The third question is about the amount payable by KE to NTDC/CPPA-G and SSGC. Also, there are queries as to whether any other payments are due to be made to the parties in relation to the above claims.

According to government officials, Clause 3(4) of the mediation agreement specifies the timelines for mediation as follows: "The mediator shall render his determination in writing in relation to all claims submitted before him within 60 days from the date of appointment, extendable by a further 30 days if mutually agreed upon by all parties."

It was informed during the meeting that the mediation process commenced with the appointment of mediator Asmat Ausaf Ali on March 4, 2024. However, the KWSB refused to participate in the mediation process and did not attend proceedings despite the mediator's efforts.

Meanwhile, KE submitted claims regarding amounts owed by KWSB and the government of Pakistan in the absence of KWSB claims as well as certain purportedly verified and unverified claims of tariff differential subsidy pending before the government.

The position of the government (Finance Division) on the purportedly verified tariff differential claims was noted. NTDC/CPPA-G filed a statement of claims for amounts owed by KE for the supply of electric power by NTDC/CPPA-G. SSGC also filed a statement of claims pertaining to amounts owed by KE.

The economic decision-making body was requested to consider the mediation process and its continuation. It was further informed that, given the current status of mediation, an extension of 90 days was requested to allow completion of the mediation process.

The economic decision-making body was also told that the issue should be dealt with as per the amended mediation agreement, which would allow for a 90-day extension from the date of approval to ensure that the mediation process was adequately concluded.