Five of the 19 IPPs involved in projects in Pakistan have reached tentative agreement with the government over lowering of tariffs for power supplied to the Water and Power Development Authority (WAPDA).

According to Coastal Power, which has stakes in two projects, the companies agreed to cut tariffs by 5-10 per cent. A 20 per cent cut, demanded by WAPDA, would have left them unable to service their debts.

However Hub Power Co served a preliminary termination order against the government and WAPDA, accusing them of breach of contract. The company will continue discussions with the government during the 90 day consultation period triggered by the default notices. If no agreement is reached, the company will terminate the agreement. At issue is the failure of the government to provide foreign currency which is needed by Hubco to pay its operation and maintenance contractor, National Power, which has a 25 per cent stake in the scheme. The Pakistan government accused the IPP of overcharging WAPDA and using corrupt means to obtain the contract, charges which Hubco denies.

If, after all avenues are exhausted, the issue cannot be resolved, then the World Bank, as ultimate guarantor, will be forced to make payments to make up for the default.