ISLAMABAD: M/s Sapphire Electric Company Limited (SECL) has said that this is the fourth time sovereign power contracts are being negotiated forcibly, offering termination of sovereign contracts and doing away with capacity payment if their proposals are accepted by the government.

This assertion was conveyed by the company’s Chief Executive Officer (CEO) Shahid Abdullah in a letter to Prime Minister Shehbaz Sharif, which is contrary to what is claimed by the Task Force on Energy that everything is being done with mutual consent.

Other IPPs have also written a joint letter to the Prime Minister contents of which are also almost the same. German government has also expressed reservations at the “controversial” deal with M/s Rousch Power as German firm M/s Siemens is one of the partners in the project.

Deals with IPPs: Govt faces backlash from foreign govts

Negotiations between the Task Force and 18 IPPs for conversion of their PPA on take and pay from the take or pay mode are ongoing with about 12 IPPs asked to return overpaid amount of Rs 55 billion, which they are resisting, said an insider.

According to the CEO SECL, over the last one year, various Government bodies as well as media has been arguing that fixed capacity payments to private IPPs have made consumer tariff unaffordable, adding that while they agree that the current consumer tariff has become unaffordable, bot to maintain that the primary issue is capacity payments is not only misleading but a gross understatement of a complicated issue.

He said, without going into too much detail, suffice it to say, that: (i) the average generation tariff is Rs 27/kWh, while the average consumer tariff is overRs 60/kWh and this increase of over 100 per cent is on account of taxes, Transmission & Distribution costs, and losses/theft; (ii) the capacity payments of all IPPs is Rs 17/kWh of the generation tariff, out of which more than half goes to government owned IPPs;(iii) the demand of power has dropped over 22 % in the last two years resulting in unit costs having gone up; and (iv) the exchange rate depreciated by more than half in the last 3 years which caused over 40% increase in capacity payments.

He maintained that in response to the question at a recent energy forum as to whether the IPPs have destroyed the economy, the former Prime Minister Shahid Khaqan Abbasi answered by saying that it was in fact a weak economy that has destroyed the IPP sector.

He further stated that the notion of Take and Pay agreements in a Single Buyer market is financially unsustainable. Effectively, the generators are being asked to fund all the fixed costs of maintaining a power plant to keep it available for operation year-round, spending billions on doing so, yet there is no commitment for purchase by the Single Buyer (the GoP) while the generation is legally barred from selling power to other buyers.

Shahid Abdullah argued that such an agreement does not exist anywhere else in the world and would bankrupt a generator within months.

Therefore, this proposition is completely unworkable. Even through eliminating the entire capacity payment of all the 2002 IPPs (2,600 MW) would only have an impact of Rs 0.5/kWh on the generation tariff, and as such is an iota of the consumer tariff, adding that his Company, despite having one of the lowest tariff of Rs 2/kWh in industry, is ready to terminate its existing sovereign contract, and eliminate the capacity payments, subject to the following: (i) all past due amounts be paid at the time of termination, either in cash or T-Bills; (ii) all “Take or Pay’’ contracts be terminated to eliminate the Capacity Payments. whether GoP owned, under CPEC umbrella, or privately owned.

Discrimination is not justifiable;(iii) Generators be allowed to sell their power to private buyers, wheeling it onto the existing T&D system at the same cost applicable to government sector entities, with no obligation on the part of the GoP; (iv) SNGPL continues to supply LNG to those IPPs who run on this fuel on a committed and competitive basis, until private import using existing infrastructure is allowed since the LNG supply is still a monopoly by the GoP. “This is now the fourth time sovereign power contracts are being renegotiated forcibly.

While we believe that any meaningful reduction in consumer tariff can only come from (a) increase in power sales, (b) long outstanding reforms in T&D system, and (c) reduction in crushing taxation burden, it appears that the policy makers continue to focus on small short term gains, at huge long-term costs, while ignoring the hard reforms that are necessary to make the sector viable,“ Shahid Abdullah said adding that regardless, IPPs are prepared to sacrifice and play their part as long as they are not being discriminated against and all are made to join in.

Copyright Business Recorder, 2024