April 11, 2014
The Sindh High Court on Friday suspended the Private Power and Infrastructure Board’s termination letter to Star Power.
Star Power is developing a 134-megawatt, gas-fired Independent Power Project in Daharki, Sindh, in collaboration with the Sindh government through a transparent public-private partnership model. Star Power, through its counsel Farooq Naek, filed a petition against PPIB at the Sindh High Court arguing that its investment of $8 million had created its interest and established its seriousness in pursuing the nationally-important project.
The Sindh government, which will have 51 percent shareholding in the project, had previously urged PPIB to extend the financial-close timeline for Star Power to Dec. 31, 2014. Sindh’s request to PPIB was turned down, prompting the chief minister to write to the prime minister requesting that “directions may please be conveyed to the Ministry of Water and Power and PPIB to extend the Letter of Support, issued by PPIB, to Dec. 31, 2014.” Qaim Ali Shah added: “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.”
However, on March 24, PPIB encashed Star Power’s performance guarantee of $2.68 million. The Ministry of Water and Power, through a press release the same day, claimed that action against the $196-million power project had been taken “in line with the present government’s proactive policy of implementing power projects within prescribed timelines.” It further claimed that “any default which results in loss to the national exchequer/public funds will not be compromised.” Star Power does not involve any financial exposure on the part of the federal government or the national exchequer.
Star Power wrote to PPIB on March 28 urging it to “extend the Letter of Support in order to enable the Sindh government and the private-sector sponsors to materialize the project” and to “review and reconsider the drastic measure of encashing our Guarantee, especially since there exists precedent for doing so.” Star Power said that the “cancellation of non-extension 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.”
However, through an undated letter this week, PPIB informed Star Power that the Letter of Support No. 1 (102) PPIB-1001/05/PRJ dated Oct. 27, 2005, had also been “terminated with immediate effect,” effectively ending the project.
The Sindh High Court has suspended the operation of the PPIB communication terminating the Letter of Support. It has also issued notices to PPIB and others to make arguments at the next hearing, which is scheduled for April 30.