Capacity payments to IPPs: SC moved to get ‘2020 Report’ implemented in letter and spirit

ISLAMABAD: The Supreme Court has been asked to direct the federal government to take urgent and meaningful steps to tackle the electricity emergency and to implement the ‘2020 Report’ in letter and spirit.

The Federation of Pakistan Chamber of Commerce and Industry (FPCCI) through its Vice President Zaki Aijaz, and Chairman/ CEO of Diamond International Corporation Limited Asif Inam, on Tuesday, filed a petition under Article 184(3) of the Constitution, citing secretary Ministry of Energy, Power Division, chairman National Electric Power Regulatory Authority, and Independent Power Producers Association as respondents.

A day ago (Monday), the Lahore High Court Bar Association and its president filed similar petition, urging the apex court to direct the secretaries Ministries of Energy, Water and Power and others to stop making payments to the IPPs, which cannot be justified to be lawful within the framework of constitution, Power Purchase Agreements, Implementation Agreements and other related agreements before the Supreme Court against the failure of the State to provide electricity in a reasonably affordable manner.

SC urged to order govt stop making payments to IPPs

The FPCCI and Asif Inam submitted in its petition that the purchase of electric power for delivery to the citizens of Pakistan has been done without competitive bidding exacerbates this foundational violation of the constitution.

They questioned whether electricity is part of the right of life guaranteed under Article 9 of the Constitution and, if so, whether the supply of such a basic and essential commodity is to be ensured on a least cost basis.

The petitioners stated that for the past 30 years; i.e., since 1994, Pakistan’s electricity sector has been used for uninformed experiments in policy-making, all of which have served only to enrich domestic and international elites at the expense of Pakistan’s citizens. The first offender in this regard was the World Bank, which was directly responsible for the 1994 Policy and which directly benefited from the skewed incentives in the 1994 Policy.

The irony; however, is that even though the World Bank itself, along with most experts, has long since recognised that the 1994 Policy was disastrously flawed, the 1994 Policy lives on in the form of the 2015 Policy. The current situation is entirely untenable.

The Government of Pakistan (GoP) is on track, during this financial year, to make capacity payments totalling almost Rs2.1 trillion while circular debt for the energy sector in 2024 reached Rs5.422 trillion.

At the same time, numerous independent power producers (IPPs) are being paid billions despite not producing any electricity. Not surprisingly, Pakistan has the highest electricity tariffs in the region. Not only is this placing an unbearable burden on domestic consumers, but industries are being forced to either go off-grid or else shut down. Meanwhile, the GoP is trying to recover higher and higher tariffs from a smaller and smaller pool of customers.

They said that the 288-page report dated 16.03.2020 prepared by the “Committee for Power Sector Audit, Circular Debt Resolution and Future Roadmap” (the 2020 Report), which identified more than Rs100bn worth of excess payments made to IPPs and recommended a number of steps to identify power sector problems, including conducting a forensic audit and the recovery of prior excess payments has still not been fully implemented till date.

No forensic audit has been conducted till date. No excess profits appear to have been recovered. No public clarification or notification has been issued to reverse the timing errors in terms of calculating IRR and debt repayments. No heat rate audit appears to have been conducted.

They prayed that the Court declare that it is the responsibility of the Government of Pakistan under Article 9 of the Constitution to ensure the supply of electricity on a least cost basis to the citizens of Pakistan.

They also prayed to declare that the 1994 Policy, the 2002 Policy and the 2015 Policy were all null and void because they permitted (and continue to permit) the disposal of state largesse other than on the basis of competitive bidding and without any rational basis; declare that the federal government and its instrumentalities cannot profit from the provision of essential facilities (such as electricity) to the general public, where such facilities are not available except from the Government of Pakistan.

They prayed to direct the federal government to commission a detailed and thorough forensic audit of all IPPs; direct the federation to implement the 2020 Report in letter and spirit, inter alia, by: i. recovering excess profits earned by IPPs; ii. renegotiating all IPP agreements and changing them from “Take or Pay” to “Take and Pay”; iii. removing anomalies regarding the calculation of IRR from all IPP agreements; and, iv.

Withdrawing all such directions as allow the dollarisation of amounts not actually invested or borrowed in foreign currencies; and v. Any other relief deemed just and equitable in all the circumstances of the case may also graciously be granted by the apex court.

Copyright Business Recorder, 2024