THE government's resolve to revise power purchase agreements signed with independent power producers (IPPs) in 1994 by the previous administration received a setback on 30 June as the Supreme Court dismissed a petition filed against Hub Power Company (Hubco) by state watchdog Ehtesab.

The court ruling came three days after the government said it had terminated the power purchase agreement with Southern Electric Power Company (Sepcol) and issued notices to eight other IPPs.

The petition had challenged the Supreme Court's 5 June decision to suspend a Lahore High Court directive to the Water & Power Distribution Authority (WAPDA) to pay Hubco only Rs 1.50 ($0.03) a kilowatt-hour rather than the contracted rate of Rs 3.17 ($0.07). The directors also stopped Hubco remitting funds abroad.

The Supreme Court modified the Lahore High Court ruling and allowed Hubco to pay its external debts. It also told WAPDA to pay the power company Rs 845 million ($18.4 million) a month in addition to Rs 1.50 ($0.03) a kilowatt-hour as fuel costs.

'We are pleased that the court did reject the Ehtesab petition. The dispute over the power purchase agreement should be decided not in law courts but through civil arbitration,' says Philip Spencer, operations director of Hubco. 'We are bound by the power purchase agreement and we will abide by it. The decision has shown that the courts of Pakistan agree with us.'

According to Hubco lawyer Abdul Hafeez Pirzada, the government lawyer, Fakhruddin G. Ibrahim, did not press for his petition to be pursued further. The government had sought the revision of the 1994 power purchase agreement signed with Hubco by former prime minister Benazir Bhutto's government.

Hubco is the second largest stock listed on the Karachi Stock Exchange (KSE) which picked up 68 points on the court ruling, after slipping to a record low of 811.03 on 29 June. The slide followed a joint announcement on 27 June by Water & Power Minister Raja Nadir Pervaiz, Law & Justice Minister Khalid Anwer and Senator Saif ur-Rehman, chief of the Ehtesab office, that the agreement with Sepcol had been cancelled and eight other IPPs have been sent notices. 'Sufficient material is available to establish our point of view in the court of law that the corruption has been committed in Pakistan by some of these projects,' Pervaiz said.

Sepcol officials say they have not received 'any notice from any party, and are unable to comment without studying the contents of a notice'. Pervaiz said three teams headed by himself, Anwer and Rehman probed into various aspects of IPPs and found evidence of over-invoicing, inflated rates and kickbacks. 'The decision has established our credibility and will not affect foreign investment.'

Anwer said the decision was taken with the consent of the World Bank, which has sponsored most of the IPPs. According to Anwer, World Bank president, James Wolfensohn, had recently written a letter to Prime Minister Nawaz Sharif suggesting stern action against IPPs found involved in corrupt practices.

The 115-megawatt (MW) capacity Sepcol was set up at a total cost of $119.5 million with the participation of Canada's British Colombia Hydro International at Raiwind near Lahore. Pervaiz said six IPPs - Uch Power Project (525 MW), Kohinoor Energy (1,240 MW), Saba Power Company (190 MW), AES Lalpir (337 MW), AES-Pak Gen (337 MW) and Habibullah Coastal Energy (123 MW) - have been sent notices for termination of power purchase agreements on grounds of impropriety, while two others - Sabha Shipyard Pakistan

(274 MW) and Power Generation System (116 MW) - have been sent notices on technical grounds. The IPPs deny receiving any such notices.

'These companies have 90 days for their defence. If they fail to clarify their position their contracts will stand cancelled,' Pervaiz said.

Pervaiz said under the present agreements WAPDA was due to pay the IPPs Rs 60,000 million ($1,304 million) on 30 June 1998. It will have to pay Rs 93,000 million ($2,022 million) in June 1999 and Rs 120,000 million ($2,609 million) in June 2000.

He said nine IPPs have agreed to cut tariffs to less than $0.05 a kWh. He listed eight: Altern Energy (13 MW), Tapal Energy

(190 MW), Gul Ahmed Energy (125 MW), Fauji Kabir Wala (140 MW), Japan Power (107 MW), Eshatech Energy (18 MW), Davis Energy (10 MW) and Northern Electric Company.

The KSE has called on the government to settle its row with the IPPs. 'The IPPs issue has had a serious and adverse impact on an already declining market. It would be in the interests of all concerned that the government resolve the issue...without further delay,' a KSE board statement said (MEED 29:5:98, Cover Story).