FEDERATION OF PAKISTAN THROUGH MINISTRY OF WATER AND POWER vs SPENCER POWERGEN COMPANY OF PAKISTAN LIMITED

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FEDERATION OF PAKISTAN THROUGH MINISTRY OF WATER AND POWER VS SPENCER POWERGEN COMPANY OF PAKISTAN LIMITED. Arts. 185(3) & 199---Establishment and operation of a 330 MW 'private thermal power project'---Premature invalidation of 'letter of support' by 'Private Power and Infrastructure Board' (PPIB)---Encashment of performance guarantee (PG), challenge to---High Court allowed the prayer for direction to reimburse the amount realized upon encashment of PG---Legality---Whether such direction amounted to interference in a contractual dispute---Determination. Brief facts were that the federal government introduced the 1994 Power Policy under which the respondent was issued a 'letter of interest' ("LOI") and later a 'letter of support' ("LOS") for establishing a 330 MW power project, requiring achievement of financial close and submission of a performance guarantee ("PG"). The LOS was extended until 30.10.1996, while national policy decisions of the ECC altered the treatment of power projects exceeding the 3,000 MW cumulative financial-close threshold. Before expiry of the extended deadline, respondent was informed that its LOS stood invalid due to other projects reaching the cumulative limit and subsequently encashed the respondent's PG on 28.11.1996. The respondent filed a writ petition seeking refund of the encashed PG, which the High Court allowed, and the intra-court appeal against it was dismissed. The issue for determination before the Supreme Court was "whether the High Court's direction to refund the encashed PG amounted to unlawful interference in a contractual matter or whether it correctly enforced binding public-law decisions of the ECC?". Held: Private Power and Infrastructure Board (PPIB) prematurely declared the respondent's LOS invalid and refused to approve essential term sheets even though the LOS remained valid until 30.10.1996, thereby preventing the respondent from achieving financial close. Since the approval of the respondent's term sheets by PPIB was mandatory before financial close could be declared, and since PPIB, in its letter dated 01.09.1996, had taken the position that the respondent's LOS was not valid, not because it had expired, but because other private power projects had achieved financial close for a cumulative capacity of 3,000 MW, it could not be held with certainty that the respondent would not have achieved financial close within the deadline of 30.10.1996 set in PPIB's letter dated 24.03.1996. By informing the respondent through letter dated 01.09.1996 that its LOS was not valid, the respondent could not have been expected to take steps for achieving close thereafter. It was almost a month before such deadline that PPIB through its letter dated 01.09.1996, informed the respondent that its LOS was no longer valid. PPIB's basis for taking this position was achievement of financial close for the cumulative capacity of 3,000MW by other private power projects, and not because the respondent had breached any provision of the LOS. In such circumstances, the encashment of the respondent's PG was most irrational and unreasonable. By allowing respondent's writ petition High Court had given effect to the decisions of the ECC and had not interfered with the contractual obligations arising under the LOS. Appeal had no merit and was dismissed, in circumstances.

FEDERATION OF PAKISTAN THROUGH MINISTRY OF WATER AND POWER vs SPENCER POWERGEN COMPANY OF PAKISTAN LIMITED — 2026 SCMR 339 SUPREME-COURT

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