Resolution of issues related to payables, receivables through arbitration

ISLAMABAD-To resolve the issues related to K-Electric’s payables and receivables through arbitration, the KE has submitted its TORs to the federal government and dropped its early demand of “the principle of reciprocity” and has also accepted that arbitration may take place in Pakistan, rather than in London.
The Ministry of Energy has yet to respond to the TORs submitted by the KE regarding the arbitration in the issues related to company’s payables and receivables, officials’ source told The Nation.
In continuation of the government’s now-desperate efforts to resolve the long-standing issues related to K-Electric’s payables and receivables, the KE has agreed to drop “the principle of reciprocity” contained within its previous TORs and has also accepted that arbitration may take place in Pakistan, rather than in London. 
For years, KE had insisted that, on account of its 66% foreign shareholding and largest foreign direct investment in the power sector, its shareholders were entitled to seek international arbitration with regards to payable and receivable dispute resolution. Similarly, the utility had asserted that for any financial settlements between KE and public sector entities, instead of reciprocity, the arbitrator should fairly and in accordance with sharia determine the delayed payment compensation charges individually for each entity.
To quantify how gargantuan this issue has become, KE’s payables stand at over Rs 196 billion and if the contentious markup claimed by Sui Southern Gas Company (SSGC) and National Transmission and Distribution Company (NTDC) and CPPA-G is added, the total swells to over Rs 310 billion. At the same time, KE’s receivables from KWSB, Tariff Differential Claims and other public sector entities, on a principal basis, stand close to Rs 264 billion and have remained unpaid now for several years, recently pushing the profitable company into financial losses on account of debt servicing payments to the tune of Rs 16 billion. If both its payables and receivables are netted off, then on principal basis, the power utility claims that it stands to receive Rs 80 billion.  
The Prime Minister has already shared the view in a high-level meeting on January 22, 2021 that the current situation is unacceptable for the government and tasked the Power Division with the resolution of this issue within 7-10 days. Sources within the ministry have throughout maintained that “the real dispute is the reciprocity (principle).” By conceding on the two principles and sharing its revised Terms of Reference (TORs) shortly thereafter where it seeks conclusion of this issue within 90 days through arbitration and agreeing to take back all pending cases with regards to the payables and receivables issue.
Delays on the part of decision-makers thus far have already pushed the lucrative SEP transaction into the doldrums and can potentially derail the commissioning of KE’s 900 MW RLNG power plant currently under construction at Port Qasim and progress of the interconnection upgrades to evacuate additional power from the national grid. Even if KE completes plant and interconnection grid construction, if the issue of payables and receivables with SSGC and NTDC are not resolved and Gas Supply Accord (GSA) and Power Purchase Agreements (PPA) are not respectively signed, then Karachi’s energy security remains a question mark in the short term and may continue to remain subject to the vagaries of political winds in the long-term.
As per the TORs, the Parties agree to submit their respective claims mentioned below for arbitration within 15 days of signing of this agreement before the Arbitrator appointed hereunder (“Arbitrator’). The arbitrator shall determine the actual payable principal amount of each Claim (excluding compensation thereon) owed and payable by each Party to the other Party as of [date] in accordance with the TORs agreed herein. 
The Arbitrator shall determine and calculate the quantum of compensation. Each Party hereby agrees to withdraw any existing litigation and not conduct any further litigation, to the extent that such litigation relates to any amount that is part of the Claims submitted before the Arbitrator. 
The Parties hereby permanently waive their right to bring any claim (“Additional Claim’) in respect of the matters mentioned in Clause 1 other than the Claims and the Parties will be deemed to have forgone their right to recover any such Additional Claim. 
The Parties agree that any Claims, or parts thereof, which are determined to be payable by KE, shall remain subject to adjustment, against and in light of, any structural changes made by GoP relating to the Compensation for delayed payments by GoP and/or NEPRA through a surcharge and/or pass-through cost in KE’s tariff. 
The Parties agree that, all Claims and matters mentioned in Clause 1 will be heard and decided together with adjustments given and accommodations as referred to in Clauses 2 and 3 above in line with the principles of equity, fairness and Shariah and that for existing and/or past contracts and contractual obligations shall not be relevant for the purposes of the determination of any compensation for delayed payment as mentioned in Clause 1(ii), 1(iv), 1(vi) and 1(viii), and/or bind the Parties and/or the Arbitrator in determining the Claims submitted herein, and/or hold any persuasive or legal force in any manner whatsoever, including in respect of determining and calculating any amount of Compensation.