HUBCO Finalizes Settlement with Government for Power Agreement Termination

The Hub Power Company Limited (HUBCO), recognized as Pakistan’s largest Independent Power Producer (IPP), has recently taken a significant step by initialling a negotiated settlement agreement with the government. This development was disclosed in a notice to the Pakistan Stock Exchange (PSX) on Thursday morning, marking a pivotal moment in the ongoing discussions surrounding the country’s power sector.

In a detailed statement released later that day, the government outlined its plans for reforming the power sector, which includes the termination of existing agreements with five IPPs, including HUBCO. The notice from HUBCO stated, “We hereby inform you that upon the request of the Task Force constituted under the Prime Minister’s Office, The Hub Power Company Limited, in the greater national interest, has initialled a negotiated settlement agreement with regard to the accelerated expiry on October 1, 2024 of its relevant agreements scheduled to expire in March 2027, relating to the company’s 1292 MW power generation project located at Mouza Kund, Post office Gaddani, District Lasbella, Baluchistan.”

According to the terms of this agreement, the Government of Pakistan (GOP) and the Central Power Purchasing Agency-Guarantee (CPPAG) have consented to settle HUBCO’s outstanding receivables up until the new expiry date of October 1, 2024. The Board of HUBCO has approved the terms of this settlement and has authorized the execution of a definitive agreement regarding the matter.

This development is part of a broader strategy by the government to renegotiate or terminate contracts with various IPPs as it grapples with financial challenges and aims to streamline the power sector. In a related move, Lalpir Power Limited, another listed IPP, has announced that its Board of Directors will soon present proposed terms for the early termination of its agreements with the government to shareholders for approval.

Reports indicate that the federal government’s efforts to address issues with different IPPs are beginning to yield results. Four IPPs, namely M/s Atlas Power, M/s Saba Power, M/s Rousch Power, and Lalpir Power, have already initialled agreements for the premature scrapping of their contracts, with HUBCO expected to follow suit shortly. The Task Force on Power Sector, which includes senior security officers, legal experts, and representatives from various regulatory bodies, has played a crucial role in persuading these IPPs, many of which were established under earlier power generation policies, to renegotiate their agreements.

While HUBCO, Rousch Power, and Lalpir Power initially resisted the idea of premature termination of their Power Purchase Agreements (PPAs), they ultimately showed flexibility in their negotiations. However, it has been reported that there were disagreements between HUBCO and the government regarding a sum of Rs1 billion, highlighting the complexities involved in these negotiations.

The negotiated settlement between HUBCO and the government represents a significant shift in Pakistan’s power sector landscape. As the government continues to seek solutions to its financial challenges, the outcomes of these negotiations will likely have lasting implications for the future of energy production in the country. Stakeholders and consumers alike will be watching closely to see how these changes unfold and what they mean for the stability and sustainability of Pakistan’s energy supply.