'Windfall' profits in 10 years: Senate panel castigates IPPs for 'violating' RoE benchmarks

A Senate panel Tuesday threatened to nationalize those Independent Power Producers (IPPs), which made unprecedented profits in violation of agreements and are unwilling to return the amount to the government. This was indicated by the panel's chairman Senator Nauman Wazir Khattak while wrapping up the meeting. Senators Agha Shahzaib Durrani and Muhammad Akram also attended the meeting.
Senator Nauman Wazir Khattak claimed that out of 187 IPPs, he has gone through the balance sheets of only eight IPPs which are as follows: M/s Nishat Power Limited; (ii) Nishat Chunian Power Limited;(iii) Atlas Power Limited;(iv) Hub Power Company (Hubco); (v) Engro Powergen Ltd; (vi) Kohinoor Energy Limited; (v) Saif Power Ltd; and (vi) Sapphire Electric Company (Ltd).
These eight IPPs, he claimed, pocketed Rs 102.740 billion over and above their due profits. Their profits should have been Rs 30.853 billion on the basis of 15 per cent Return on Equity (RoE) but they earned Rs 133.594 billion during the last 8-10 years.
Senator Nauman Wazir Khattak maintained that IPPs made profits on the same scale as narcotics with mala fide of the regulator. He said if the overpaid amount is returned to the exchequer, the issue of circular debt can be resolved. He said the amount paid to the IPPs as capacity is higher than development budget of the country and that Nepra's reply to his questions indicate that it is defending IPPs. He added that any unrealistic reply from Nepra will be considered perjury.
As GoP policy they were entitled to a profit of Rs 717 million per annum, however, they were on average earning Rs 3.105 billion per annum which implies that they were making an illegal profit of Rs 2.389 billion per annum.
For all 40 thermal IPPs (average generation till-date of 10 years) the GoP paid Rs 955.728 billion extra to the IPPs which is $ 6 billion which Pakistan has sought from the IMF, he added.
"This should be recovered from the IPPs. If dividend is paid, then it should be recovered from shareholders. In case of non-compliance or non-recovery, it is suggested that FIR should be lodged against shareholders for providing wrong data at the time of tariff determination and defrauding GoP. Assets of companies must be confiscated/nationalized," said the panel chief.
It was also observed that during the last 6 years Nishat Power/Nishat Chunian were, in principle, supposed to earn a profit of Rs 7.02 billion based on 15 per cent RoE as per energy policy of GoP. However, the incorrect tariff approved by the then Nepra officials, resulted in a windfall profit of Rs 37.65 billion, enabling them to earn an illegal profit of Rs 30.63 billion only in six year.
The committee further observed that future tariff must be reduced by Rs 1 to Rs 3 per unit depending on the IPPs.
The committee decided to summon the CEO of Nishat Chunian in the next meeting. One Chartered Accountant will also be invited by the committee to plead its case against IPPs.
"As per agreement, the IPPs should have made profits of Rs 400 billion but they made Rs 1.4 trillion profit, which is clearly evident on Nepra website," says the statement.
However, the National Electric Power Regulatory Authority's (Nepra) team comprising Vice Chairman, Engineer Bahadar Khan, additional Director General, Sajid Akram and Chief Executive Officer(CEO), Central Power Purchasing Agency-Guaranteed (CPPA-G), Abid Lodhi who are already facing the National Accountability Bureau (NAB) challenged the statistics and formula of Senate penal, saying that the methodology used to calculate profits are " unrealistic". The newly appointed Member KPK, Bahadar Khan, who is also under the radar of the NAB, dispelled the impression that there was any mala fide on the part of regulator. He said when the regulator felt abnormality in the IPPs profits, they were issued notices. However, this issue is in courts and sub judice.
Senior officials from Nepra told the committee that in these agreements and payments, following international standards is of paramount importance and more than one financial principles including cash flow and accounting principles come into action.
The committee put forward a list of 17 questions before the ministry and Nepra and sought answers during the next meeting. Members of the committee argued that this extensive exercise is aimed not at individual cases but on the overall policy and at coming up with lessons and guidelines for such agreements in future.
The committee took strong notice of the absence of the Minister and Secretary and observed that the issue under discussion is a very important matter relating to circular debt, economic crises and ideally the minister should have been here to respond to the sub-committee's queries.