Star Power: Court suspends cancellation of letter of support

Order came after PPIB revoked letter and encashed $2.68m worth of guarantee.

KARACHI:

The Sindh High Court (SHC) has suspended a communication from the Private Power and Infrastructure Board (PPIB) that revoked the Letter of Support to Star Power for delay in achieving financial close.

It also issued notices to the PPIB and others to present their arguments in the next hearing slated for April 30.

The court order came on Friday in response to a petition filed by Star Power, through its counsel Farooq Naek, against the PPIB, arguing that the company’s investment of $8 million had created interest and established seriousness in pursuing the nationally-important project.

Star Power contested the encashment of the company’s performance guarantee worth $2.68 million by the PPIB on March 24. On the same day, the Ministry of Water and Power, through a press release, claimed that action against the $196 million power project had been taken in line with the government’s proactive policy of implementing power projects within prescribed timelines.

It claimed that any default, which resulted in loss to the national exchequer, would not be compromised.



According to a statement issued by the management of Star Power, the company is developing a 134-megawatt, gas-fired independent power project in Deharki in collaboration with the Sindh government through a public-private partnership model.

Earlier, the province, which has 51% shareholding in the project, had urged the PPIB to extend the financial close deadline for Star Power to December 31, 2014.

However, the PPIB turned down the request, prompting the Sindh chief minister to write to the prime minister, asking “directions may please be conveyed to the Ministry of Water and Power and PPIB to extend the Letter of Support, issued by the PPIB, to December 31, 2014.”

“The government of Sindh is confident that the project can achieve financial close on a fast track and start commercial operations in accordance with the timelines,” the chief minister said.

In a communication on March 28, Star Power pressed the PPIB to extend the Letter of Support in order to enable the Sindh government and the private-sector sponsors to develop the project.

It also asked the PPIB to review and reconsider the encashment of its guarantee, especially since there was no precedent for doing so.

“Cancellation of the Letter of Support will scuttle this IPP and substantially delay a new source of affordable electricity. This development would be inconsonant with the publicly-avowed objectives of the federal government,” Star Power said.

However, in a letter issued this week without any date mentioned, the PPIB told Star Power that the Letter of Support had been terminated with immediate effect, effectively ending the project.

Published in The Express Tribune, April 12^th, 2014.

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