KARACHI: Pakistan Business Forum (PBF) stated that the power purchase agreements (PPAs) with Independent Electricity Producers (IPPs) were made without proper consideration of the potential consequences and is the main reason for Pakistan’s electricity and capacity charges problems. Consequently, the nation and industry are currently experiencing and are on the brink of economic collapse.
While addressing the business community, President PBF Khawaja Mehboob Ur Rehman highlighted the absence of unbiased consultant services and the necessary professional or technical knowledge to effectively handle the substantial number of IPPs.
These contracts mandate the procurement of a set minimum quantity of power from the IPPs. If you look into Chinese IPP only; the payables touching almost $2 billion dollars and the government is contemplating finalizing a schedule of payments to Chinese Independent Power Producers.
Electricity tariff hike: PBF urges govt to cancel all agreements with IPPs
We must understand “Pakistan cannot afford to make the same mistakes every few years just because a new group of investors wants to get paid for doing nothing. Our country is blessed with all resources. All we need for prosperity is for the mismanagement to end”.
“PBF President demanded that the federal government must begin conducting forensic audits of these IPPS, including investment forensic audits, to look into any abnormalities in the financial transactions of IPPs or potentially criminal behavior” including technical audit to evaluate the output and efficiency of power plants owned by IPP and also financial audit: to carefully examine the financial transactions and records of IPPs.
Similarly we also demand fuel audit to confirm that IPPs’ reported fuel usage and expenses are accurate. So that these assess how well IPPs are carrying out their allocated duties.
PBF Chairman South Punjab, Malik Talat Suhail further emphasized the necessity for the federal government to take the initial step in discontinuing the utilization of capacity payment fees based on “Take or Pay” in case audits reveal significant legal or technical discrepancies. Additionally, the federal government should engage in renegotiating contracts with IPPs to address concerns such as tariff adjustments, payment terms, and contractual responsibilities, given the escalating challenges posed by circular debt and capacity payment expenses.
While IPP contracts do include provisions for the enforcement of international arbitration rulings, it is imperative to act promptly rather than delaying until the situation deteriorates.
These audits can assist Pakistan in enhancing the overall effectiveness and transparency of the power sector by identifying and addressing any irregularities or inefficiencies in IPPs’ operations, negotiating fairer terms and prices with IPPs, recovering any overpayments or excessive profits made by IPPs, and converting the fundamental tariff of IPPs from dollars to Pakistani currency.
Additionally, the country could explore further measures such as promoting alternate energy resources, shifting towards hydroelectric and alternate energy in the current energy mixtures, and paying the owners of IPPs in Pakistani rupees instead of US dollars. By making these changes, the country could potentially save Rs5,500 billion by simply exchanging currencies instead of using a Take or Pay contract.
Talat Suhail also emphasized that renegotiating these contracts is essential both legally and economically, especially when the nation’s financial stability is at risk due to misrepresentation, extravagant concessions, incorrect capacity assessments, and lack of verification mechanisms, all of which go against the public and state interests.
Copyright Business Recorder, 2024