ISLAMABAD: Prime Minister Shehbaz Sharif-led government is reportedly opting to go the same route as Imran Khan administration in dealing with Independent Power Producers (IPPs) - reducing the Rate on Equity of public sector power plants, closure of five Gencos to get relief of up to Rs 4 per unit and negotiating on existing contracts from take or pay to take and pay mechanism, well-informed sources told Business Recorder.
However, this time, the prescription relating to undue gains/profits by the IPPs is under progress in Rawalpindi instead of Islamabad, where the government’s team along with some ‘concerned’ private experts are engaged in finalising recommendations. The sources said some team members have already collected IPPs data inclusive of physical inspection and photographs of power plants and names of shareholders. Senior officials of PPIB, CPPA-G and NEPRA are also part of the team probing the collected documents.
Govt takes big step to deal with IPP challenge
According to sources some experts who extended their support during Khan government to renegotiate with the IPPs of pre-1994 (Hubco), 1994, 2002 and 2013 are hesitant to offer their services as they argue ‘witch hunting’ of same IPPs again and again will not send a good message to investors who may be interested in participating in privatisation of Discos or Gencos like Guddu and Nandipur.
The Khan administration with visible assistance from Faiz Hameed-led ISI renegotiated with the IPPs established under pre-1994, 1994, 2002 and 2015 power generation policies, which led to a mere 48 paisa per unit reduction in tariff.
One of the key team members of Shehbaz Sharif administration, on condition of anonymity, told this scribe that Imran Khan government did not deal with the IPPs properly, adding that the government could have extracted more concessions from the IPPs.
Contracts with the IPPs comprise of energy payments and capacity payments. Capacity payments, irrespective of actual supply, include debt repayments charges, return of equity, insurance and operations and maintenance. Over 52 per cent capacity payment goes to government’s own power plants, some of which are extremely inefficient. Their employees are regularly paid their salaries even when generation is zero.
Imran Khan government, however, failed to renegotiate contracts with Chinese IPPs and five USA wind power projects established under the umbrella of International Finance Corporation (IFC). The reason given was their refusal to renegotiate (i) with the Chinese arguing that if they renegotiate they would have to offer the same concessions to other projects in other countries but pledged assistance elsewhere (China currently has rolled over $ 5 billion to Pakistan for balance of payment support) and (ii) IFC also unwilling to renegotiate contracts on terms of Islamabad. No change has been made in their contracts so far.
There is a growing impression within the government that returns of IPPs are extremely high and excessive payments have been made to power producers either through misreporting by the producers and/or weak regulatory oversight. Others point out that IPPs are paid as per the contracts signed by the then governments and the responsibility therefore rests with the Pakistan authorities.
Recently, Finance Minister and Power Minister visited China and requested re-profiling of Chinese power loans for a further 8-10 years so that the government may be able to create fiscal space to reduce the very high power tariffs. It is unclear if China has responded positively or not to Islamabad’s proposal. The due amount of Chinese power plants is now about Rs 400 billion.
Power sector insiders told Business Recorder that it had been agreed between the IPPs and the government during Imran Khan’s tenure that both would approach International Court of Arbitration to get a decision on Terms and Reference (ToRs) so as to avert an impression that the government had pressurised them for review of their pacts which may have negative repercussions on future contracts/privatization.
“Revised agreements had been signed by both the IPPs and the Government and first installment of 33 per cent also cleared, however, the issue of revised ToRs is still unresolved as the government has not signed the ToRs, as it is awaiting approval from International Court on the revised pacts,” said one of power sector expert.
According to IPPs, SBP will not clear payments to remit dividends until ToRs are signed by all the concerned parties. The Arbitration hearing in London has been delayed as signed ToRs have not been submitted to the Court by the Power Division and the Law Ministry pending since late 2021.
The payment of Rs 8.35 billion to Nishat Chunian Power Limited (NCPL) of Mian Mansha Group had not been made due to a case in National Accountability Bureau (NAB). However, NAB closed the case a few months ago and the Company has approached CPPA-G for the withheld payment.
The Cabinet Committee on Energy (CCoE) headed by the then Planning Minister, Asad Umar, on the proposal of NAB, had recommended recovery of about Rs 52 billion from IPPs including Rs 8.35 billion from NCPL.
However, NAB withdrew the notice after the involvement of the then Prime Minister and ISI as its senior officials were also members of the team which renegotiated the deals. Recently, Prime Minister constituted Task Force headed by the Power Minister, Awais Leghari with recently appointed Co-Chairperson SAPM, Muhammad Ali, to look into the issue of IPPs besides taking steps to bring down cost of electricity.
Task Force, sources said, hold internal secret meetings every day and keep most of the officials of Power Division away from these meetings so as to avoid leakage of information.
The sources said, termination of PPAs of at least five Gencos with capacity of 2500 MW, implementation on CTBM to bring some IPPs on take and pay mode so that payment of capacity is avoided is being discussed. With closure of five Gencos, government will save billions of Rupees, to be spent to reduce consumers’ tariff however the actual benefit that would be passed onto the consumers has not yet been worked out.
On August 6, 2024, Power Minister testified before the Senate Standing Committee on Power that Imran Khan Cabinet had extended favour to 7-8 IPPs through change in arbitration clause instead of further probing in the light of Muhammad Ali Report on IPPs. When this correspondent tried to probe as to precisely what favours had been extended by the Khan administration officials did not respond.
Muhammad Ali in the last days of the Caretaker administration had presented a proposal to the IMF on eliminating the circular debt but it was rejected on the grounds that it was not viable.
“All these proposals are under discussion at a secret location in Rawalpindi,” said one of the power sector experts.
The life time of a typical generating plant is between 25 to 30 years hence the pre-1994, 1994 and 2002 power plants were easy to renegotiate. The plants established under the 2013 power policy with local fuel and financiers were willing to negotiate under the ISI led negotiating team. However, the 2015 and wind projects established by the US under IFC umbrella have been unwilling to renegotiate so far.
Furnace oil-fired IPPs whose PPAs are for 30 years are, 1292 MW Hub (COD, March 31, 1997 life 30 years), 362 MW Lalpir,(November 6, 1997, 30 years) 365 MW Pak Gen (COD, February 1, 1998) 136 MW Gul Ahmed (COD, November 3, 1997), 120 MW Japan Power (COD, March 4, 2002), 131 MW, Kohinoor (COD, June 20, 1997), 134 MW Saba (COD, December 31, 1999), 117 MW Southern Electric (COD, July 12, 1999), 126 MW Tapal (COD, June 20, 1997).
However, PPA’s term of following IPPs is for 25 years; (i) 165 MW Attock Gen, LSFO (COD, March 17, 2009); (ii) 225 MW Atlas (COD, December 18, 2009);(iii) 200 MW Nishat (COD, June 9, 2010); (iv) 200 MW Nishat Chunian (COD July 21, 2010); (v) 200 Liberty Power (COD January 13, 2011); and (vi) 200 MW Hubco Narowal (COD, April 22, 2011.
Copyright Business Recorder, 2024
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