KARACHI, May 19: The Sindh High Court has set aside the termination notice served on a private power producer in October 1997 and asked the plaintiff concern to approach the Private Power and Infrastructure Board (PPIB), federal ministry of water and power, and the Karachi Electricity Supply Corporation in order to resume work on its 110-megawatt thermal power generation plant from the point it was stopped.

“The plaintiff is very much willing to implement the project and produce power in terms of the agreements signed by it with the PPIB and the KESC in 1994 and 1995. The country badly needs electricity and it is the duty of every citizen to support people who want to start power generation,” Justice Khwaja Naveed Ahmed remarked while decreeing a suit instituted by M/s Tri-Star Energy Limited last month.

The detailed judgment was made available on Monday. The plaintiff concern was directed to approach the defendants for resumption of work by May 21.

The judgment noted that the plaintiff wanted to install a power generation plant for which it completed the necessary formalities and made all the preparations. However, due to change of government (in 1996), the policy of bureaucracy also changed and power generation project was not allowed to take off. The plaintiff applied for permission to set up the plant in Karachi in June 1994 and the PPIB issued a letter of interest and required it to submit a performance guarantee from a scheduled bank.

The plaintiff concern submitted a performance guarantee effective for 13 months in the sum of Rs11 million and the PPIB issued a letter of support. The guarantee was submitted on August 2, 1994, and was payable on demand if the plaintiff delayed performance or failed to meet its obligations under the letter of support, the implementation agreement or the power purchase agreement. The implementation agreement was signed in February 1995 and the power purchase agreement in June 1995. According to the plaintiff, it delivered the requisite financial documents to the PPIB in September 1995 and achieved financial close within the stipulated time ‘despite all the delays caused by the defendants’. The defendants also accepted the letter of credit opened by it in November 1995. The plaintiff claimed that it launched the project and ‘achieved construction start’ by December 16, 1995’.

However, the PPIB threatened encashment of performance guarantee contending that the plaintiff had failed to specifically perform its part of the contract. On January 17, 1996, a letter threatening issuance of ‘a notice of intent to terminate the implementation agreement’ alleging that the plaintiff had failed to achieve ‘the construction start’ on time was served by the PPIB. The KESC also issued ‘a notice of intent to terminate the power purchase agreement’. The plaintiff submitted the auditors’ certificate evidencing commencement of construction.

Simultaneously, it approached the high court for an interim injunction but the defendants served the hurriedly served termination notices to pre-empt the plaintiff’s move. Consequentially, a single judge rejected its plea in 1997. An intra-court appeal against the order was also dismissed but with an observation that the termination was not proper. The Supreme Court granted the plaintiff leave to appeal against the SHC order but it preferred to pursue an amended plaint in the high court.

In its rejoinder, the PPIB denied that any impediments or delays were caused by its in the project. The acceptance of ‘financial close’ did not mean that the board had waived its authority if the plaintiff’s financial plans fell through. The demand for encashment of the performance guarantee was neither unlawful nor mala fide nor calculated to harm the plaintiff. Financial close could be accepted with retrospective effect. It asserted that the plaintiff had failed to meet conditions precedent for initial availability of funds. The suit, the defendant said, was not maintainable as the implementation agreement was not specifically enforceable and no permanent injunction could be granted against termination of a contract.

The KESC denied having accepted ‘financial close’ as the corporation found it unsatisfactory. The plaintiff was asked to establish a letter of credit in compliance with the terms of the power purchase agreement. No hurdle was created in the launching or completion of project and the suit was liable to be dismissed, the KESC said.

The only issue framed by the court was ‘whether the plaintiff fulfilled his part of obligation and whether the termination of implementation and power purchase agreements was lawful?’ The first question was answered in the affirmative as the plaintiff had met the requirements of letter of interest, letter of support, implementation agreement, power purchase agreement, financial close, letter of credit and construction start. The termination was, therefore, held unlawful. Advocates M.H. Tabassum and A.R. Akhtar appeared for the plaintiff and the defendants, respectively.