Lahore September 30 2021:
Auditor of Kot Addu Power Company has removed material uncertainty related to going concern of the company in this year audit report.
The Power Purchase Agreement (PPA) of the Company was initially for a term of 25 years and due to expire on June 26, 2021.
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However, during the year ended June 30, 2021, the Company signed the Third Amendment to the PPA and Master Agreement (the Agreements) with the Power Purchaser, whereby, the outages due to fuel shortage during the period 2008 to 2016 has been treated as Other Force Majeure Event (‘OFME’) under the PPA and consequently, existing Term of PPA has been extended by 485 days, till October 24, 2022.
Based on the understanding of both the parties, it has been agreed that the amount representing Capacity Purchase Price (CPP) of the OFME period (485 days) already received will be treated as advance against future CPP. Accordingly, this advance will be adjusted, and the related revenue recorded, over the period June 27, 2021 to October 24, 2022 upon satisfaction of the underlying performance obligation i.e. ensuring the availability of the Plant.
Furthermore, as per the Master Agreement the Power Purchaser has agreed to extend the PPA for an additional term following the expiry of the extended term, subject to agreement of terms and conditions. Moreover, the Company will also
have the option to sell to Bulk Power Consumers under the umbrella of a competitive power market which the Government of Pakistan intends to create.
Signing of the above-mentioned Agreements is a significant
event during the year and the evaluation of its impact involves significant management judgement, therefore, we considered this as a key audit matter.