Independent Power Producers (IPPs) facing a probe for allegedly raking in high profits on Thursday raised the question as to whether the government is entering into an administrative nightmare by investigating the private power projects. This was the crux of the meeting of the three-member Senate panel headed by Senator Numan Wazir Khattak. The convener of the panel was the only lawmaker who attended the meeting and quizzed Nepra officials and M/s Hubco''s team led by its Chief Executive Officer (CEO). The legal position of the committee''s quorum was also raised.
Nepra''s team headed by Vice Chairman, Engineer Bahadar Shah, Saif Ullah Chatha (Member Tariff) gave the regulator''s viewpoint on IPPs issue. The IPPAC has already indicated that according to Power Purchase Agreement (PPAs) IPPs have the right the approach International Court of Arbitration. The sub-committee was informed that the Power Policy 2015 was based on upfront tariff and fixed efficiency.
Senator Nauman Wazir stated that the heat rate of any power plant could be determined on the basis of input and output formula. He added that the IPPs were granted 15 per cent Return on Equity (RoE) and if they earn more than that then he has an objection. "If the profit is more than 15 per cent, then Nepra needs to look into it," he added
Khalid Mansoor who is also representing IPPs as convener in different probes argued that if any power plant made an investment to improve efficiency then how it could be denied financial benefit. According to him M/s Hubuco was allowed 15 per cent RoE on equity and its profits can be seen in the balance sheets available with Securities and Exchange Commission of Pakistan (SECP).
Senator Nauman Wazir Khattak stated that he does not want any change in the contract of IPPs but if they are not adhering to the Power Policy 2002, especially with respect to the heat rate, then there is something fishy and they have to face the music. He was of the view that the capacity of public sector organizations is below that of the private sector.
"We will hear all the stakeholders on this issue and will give a clean chit on transparency of accurate figures and if something is found to be incorrect in the record that IPPs will be penalized," he added.
Senator Nauman Wazir further stated that the sub-committee will finalise its report on capacity payment in consultation with Nepra as it has to be presented before the House and can be submitted to any court for reference.
Khalid Mansoor stated that all the data of IPPs have been shared with the Debts Inquiry Commission. He said that Nepra determines tariff based on cash flow and includes, in addition to RoE, debt service, O&M, insurance and financial charges as part of capacity payment.
Rohail Muhammad of Hubco briefed the meeting that to arrive at shareholders'' return, the profit must be adjusted for certain items such as: (i) depreciation (non-cash item); (ii) principal repayment (included in the accounting revenue but corresponding debit is in balance sheet; (iii) net interest on delayed payment (due to delayed payment by power purchaser) shareholders'' funds are tied-up in receivables and, as a result, shareholders'' did not get their dividends. This has been calculated as later paid interest from power purchaser plus cost of working capital as revenue in the capacity price less financing cost on running finance facility; and (iv) withholding tax reimbursed by the power purchaser on payment of dividends to shareholders.
He said that Hubco''s equity based 30 per cent Nepra approved project was $ 80.05 million and return on equity during construction $ 15.91 million totaling $ 95.96 million.
According to an official statement, the sub-committee on power asked Nepra to conduct analysis of the year wise details of the accounting profits of IPPs in ten days'' time and obtain the required information from them. The committee also asked Nepra to seek information about profitability of individual IPPs and its comparison with Returns on Profits under tariff.
The committee was given a briefing on the accounting profits and ROE under tariff by Hubco Narowal and sought information on other IPPs on the same format.
The committee noted that the objective to do this exercise is to see if all payments and profits are in accordance with Nepra''s terms and conditions and no overpayments or excessive profits are being made. The committee is designated to review the issues of high tariff, capacity charges, heat rates and calculation of pay back periods of IPPs.
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