Forex Crisis Leaves Hubco Struggling to Pay for Vital Imports

Hub Power Company (Hubco) has expressed grave concern about its inability to obtain foreign exchange for vital spare parts, which falls under Pakistan Political Event and Force Majeure under Article 13 of the Power Purchase Agreement (PPA). It says any consequential losses caused by a lack of spare parts will be borne by the Government of Pakistan. In a letter to Managing Director PPIB, Hubco’s chief financial officer (CFO) drew his attention to the Company’s severe challenges in importing spare parts for its plant, which prevents it from performing timely maintenance to ensure capacity. The difficulties in importing are directly related to the country’s limited availability of foreign exchange, reported Business Recorder. Given the crucial significance of power generation for the country, energy imports were ranked second on the central bank’s priority list. However, the regulator’s description of energy imports does not expressly include spare parts for power plants, so banks are refusing to issue Letters of Credit (LCs) or make payments for the import of spare parts. The letter stated, “Accordingly, these circumstances fall within the terms of Pakistan Political Event under clause 13 of IA, and trigger an Exceptional Event. Similarly, they also constitute a Force Majeure under Article 15 of the PPA”. According to CFO Hubco, timely maintenance and the availability of required spare parts are equally important for generating power from such fuel. “We reiterate that the inability to import spare parts is directly attributable to the restricted availability of foreign exchange in the country. Under Clause 10 of the Implementation Agreement (IA) of October 27, 2008, between Pakistan and Hub Power Company Limited, the Government of Pakistan (GoP) is required to ensure the availability of foreign exchange required for the foreign currency expenses, inter alia, purchase of spares,” he said in the letter. Hubco has requested that Managing Director PPIB intervene immediately to ensure adequate foreign exchange availability and to remove impediments to the import of spare parts and other foreign currency payments. For the time being, it is prudent to amend the priority list in the Circular to include power plant parts in the description of energy imports. The power company says it reserves its rights under the concession documents and other regulations, including but not limited to the PPA and Implementation Agreement (IA), for losses incurred due to the non-availability of foreign exchange.