Power ministry encashes $2.68m IPP guarantee

Project developer misses deadline for achieving financial close.

ISLAMABAD:

A 133.5-megawatt gas-fired independent power plant (IPP) is facing an uncertain future as the federal government has turned down Sindh’s request for an extension in the validity of letter of support and encashed the guarantee submitted by the project developer.

Following a notice sent by the Private Power and Infrastructure Board (PPIB), which works under the Ministry of Water and Power, the Bank of Punjab encashed Star Power Generation Limited’s guarantee worth $2.68 million on Monday. This came after a court removed a previous stay order against the PPIB on March 21.

Though Star Power won another stay order at 12.30 pm on Monday, by that time the guarantee, dated August 4, 2011, had been encashed.

“We are disappointed that the PPIB has taken such a coercive measure, under pressure from the Ministry of Water and Power, to jeopardise a nationally-important power generation project in Sindh,” said a spokesman for Star Power.

“This measure goes against the federal government’s publicly-stated commitment to increase electricity production in the country.”

According to news reports, Water and Power Minister Khawaja Muhammad Asif made harsh remarks against Star Power’s sponsors in a PPIB meeting on March 7 and insisted that these remarks should be put in official record.

Responding to this, Star Power’s spokesman said: “For the sake of national progress and economic growth and to instill confidence in the economy, it is imperative that ostensible personal animosities do not taint policymaking at any level.”

In January, Sindh Chief Minister Syed Qaim Ali Shah, in a letter to the prime minister, said the Ministry of Water and Power had not accepted the request for extending the date of the letter of support for Star Power’s project being set up in Deharki, Sindh.

“As part of national efforts to overcome the energy crisis, the Government of Sindh is also endeavouring to develop economical energy projects. In a recent initiative, Sindh invited applications from gas-based project developers under the public-private partnership mode,” Shah said.

Star Power was shortlisted as being viable and was at an advanced stage of implementation.

Accordingly, he said, the Sindh government intended to acquire majority interest in Star Power, a project based on low British thermal unit (BTU) gas.

According to the chief minister, the project developer has already signed power purchase, gas sale and implementation agreements. Its tariff has been determined by the National Electric Power Regulatory Authority (Nepra), environmental studies have been completed and land acquired for setting up the plant.

He said the Sindh government issued a letter of comfort to the PPIB managing director, asking it to extend the deadline for achieving financial close up to December 31, 2014.

“We have learnt that the request has been turned down by the Ministry of Water and Power. I wish to request that direction may please be conveyed to the ministry and PPIB to extend the letter of support up to December 31, 2014 in view of the fact that the Government of Sindh will have majority equity in the company,” Shah said.

He expressed confidence that the project could achieve financial close on a fast track and start commercial operations in accordance with the timelines. The performance guarantee of $2.68 million was valid up to the end of March. It would be extended up to March 31, 2015 in consonance with the extended date, he said.

Published in The Express Tribune, March 25^th, 2014.

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