Govt set to announce revised deals with IPPs

ISLAMABAD: The government is reportedly set to announce revised agreements with Independent Power Producers (IPPs), featuring significant reductions in payments. Authorities have questioned the owners in a discreet location in Rawalpindi, according to well-informed sources.

However, the specifics regarding how the Implementation Agreements of five IPPs will be amended remain unclear.

Many plant owners are unhappy with the pressure they faced during discussions, which included junior officials from the SECP, the CPPA-G, and the Nepra. The key issue is exorbitant capacity issues of power plants both in public and private sector.

Negotiators estimate that this initiative could lead to a maximum reduction of Rs2 per unit in the base tariff.

Sources indicate that owners and CEOs from five groups were explicitly told to either accept the government’s offers or face consequences, a situation that left them alarmed.

Some owners, who also have other business interests, have acquiesced to the pressure and consented to the revised agreements, despite the figures provided contradicting their documented data.

Good news on revised IPP deals in a few weeks: power minister Awais

The owners of Hubco, Rousch, Atlas, Nishat Group, and Saba Power have met with the Task Force led by Minister for Power Awais Leghari.

However, the discussions appear to be driven by SAPM on Power Muhammad Ali, who was present at the meetings in Rawalpindi.

Some owners reported threats of criminal proceedings if they did not comply.

“There is a prevailing view within the government that plant owners with other business interests may be more amenable to reducing tariffs, whereas, those solely invested in power projects are less likely to comply. Nonetheless, they may also feel pressured to conform,” said an insider.

Negotiators estimate that this initiative could lead to a maximum reduction of Rs2 per unit in the base tariff. Various government teams are strategizing to encourage IPPs to agree to the requested tariff reductions.

Notably, nearly all power plant owners have been urged to voluntarily announce tariff reductions to set a precedent. Some, like Attock Gen, Liberty Dharki, and Gul Ahmad, have already made reductions, while others are assessing potential changes after discussions with top officials in Islamabad.

Capacity charges: 33 IPPs were paid Rs979.3bn in FY24

“Our position is clear: we are not in breach of the Implementation Agreement, nor has the government claimed we are. Allegations from unnamed government sources are distractions and bad-faith attempts to coerce us into agreeing to unreasonable terms that violate our agreements,” stated a representative from IPPs in Lahore.

The situation regarding 12 IPPs currently embroiled in litigation at the International Court of Arbitration is also a priority. Government analysts have identified overpayments of Rs50 billion to these IPPs, who, according to Power Minister Leghari, received preferential treatment from the previous administration.

The plan includes shutting down IPPs or Gencos operating at only 20 per cent efficiency, with payments based on net return on equity. Negotiators have been advised to prepare IPPs for a claw back mechanism, as a reduction in return on equity (RoE) may not be beneficial.

The IPPs are claiming higher spreads, which are not justified, and are also disputing fuel components without heat rate audits, in addition to late payment charges. They assert that their equity funding yields higher returns and that they incur higher O&M and insurance costs in dollars.

In a policy statement before the Senate Standing Committee on Power, Minister Leghari announced that the public can expect positive news regarding mutually agreed revised deals with IPPs in the coming weeks, as the task force approaches a conclusion. He clarified that while a reduction of Rs20 per unit is not feasible; the government is exploring ways to achieve reductions of 50 paisa, Re1, or 80 paisa per unit.

“The federal government is actively exploring strategies to lower ‘unbearable’ electricity tariffs by re-bidding tariffs for approximately three dozen operational wind power plants. This effort is part of a broader push to pressure owners of other private power projects to lower their rates,” another insider revealed.

However, some IPP owners have decided to contest the government’s actions on multiple fronts, including international arbitration.

The re-bidding of tariffs for all wind projects, particularly those with higher rates, is under serious consideration. NEPRA’s Tariff Regulations allow for a re-bid of wind power project tariffs every five years, prompting the government to consider re-bidding existing operational power plants totaling approximately 1,850 MW to achieve tariff reductions.

Nevertheless, insiders at Nepra assert that no such re-bidding exercise is currently in progress. Currently, around 12 wind power projects have tariffs of 16 cents per unit, while a similar number benefit from tariffs of 10.5 cents per unit.

A committee headed by Finance Minister Muhammad Aurangzeb is working on reduction in RoEs of public sector power plants which constitute about 60 per cent of total generation.

Copyright Business Recorder, 2024