PTI govt likely to decrease profit margins for power plant owners

High profit margins have previously resulted in increased power tariffs, circular debt: sources

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ISLAMABAD: The Pakistan Tehreek-i-Insaf (PTI) government has decided to decrease the profit margin of the owners of power plants by 4 per cent, sources said on Sunday.

Well-informed sources disclosed to Pakistan Today that the incumbent government has decided to cut the profit of the owners of power plants by four per cent following historic hikes in power prices.

They said the government has advised the National Electric Power Regulatory Authority (NEPRA) to give an end to the maximum margin in comparison to the profit margin of other countries on different sources of power generation projects.

The former governments of Pakistan Peoples’ Party (PPP) and Pakistan Muslim League- Nawaz (PML-N) had inked agreements with owners of power plants at high ratios ranging from 14 to 21.33 per cent per annum which is not seen anywhere around the globe. High profit margins for owners of power plants have resulted in expensive electricity rates for consumers and increases in circular debt, said sources.

The sources also said that NEPRA had earlier taken the initiative to reduce the margin of power plants owners on 26 November, 2016. However, an influential from the ruling elite had lobbied against the initiative and stopped the process.

They said NEPRA was stopped to cut the margins only to get high tariffs for the influential owners/investors of the power plants. Necessary preparations to decrease the profit margins of influential owners of power plants are ensured so far, said sources.

Available copy of documents reveal that profit margin on equity in Pakistani currency on imported coal based power plants will be decreased from 20.30 per cent to 15.67 per cent.

Regasified Liquefied Natural Gas (RLNG) run power plants are to see cuts from 18.24 per cent to 16.44 per cent.

Similarly, local gas-run power plant margins will witness a decline from 18.24 per cent to 17.21 per cent, and the margin on coal fired power plants including Thar coal will be decreased from 21.33 per cent to 17.21 per cent.

Likewise, profit margin on bagasse-fired power plants will find a decrease from 18.24 per cent to 17.21 per cent. Moreover, profit margin on solar and wind power projects will be maintained at the current level.

Furthermore, profit margin on small hydel power projects will also be reduced from 20.30 per cent to 18.24 per cent.

It was also learnt from the documents that the profit ratio on American dollar equity for imported coal fire power plants will see a cut from 17 per cent to 12.50 per cent, RLNG run power plants from 15 per cent to 13.25 per cent and local gas run power plants from 15 per cent to 14 per cent.

Solar and wind power projects are to remain at the existing levels. Small hydel power projects’ profit ratio is to decrease from 17 per cent to 14.25 per cent, while a cut from 17 per cent to 15 per cent for big hydel power projects is expected.

Official sources in Energy Ministry on condition of anonymity said that the government has decided to decrease the margin only to reduce the burden of circular debt which is increasing with each passing day, and also as an attempt to cut the burden on national exchequer.

They said that Finance Minister Asad Umar and Prime Minister Imran Khan are convinced to cut the margin as early as possible.

NEPRA will announce the final decision on profit margin on power plants on 22 November 2018 after completing a necessary consultation process, said official sources.

The officials also told that the members of federal cabinet’s economic coordination committee (ECC) had voiced against giving high profit margins to owners of power plants in comparison to other countries’ margins.

They said former government of PML-N in a bid to give high profit margins to the owners of power plants had used NEPRA’s upfront tariff only to save its skin from any investigation over this as NEPRA will be made responsible for setting high upfront tariff in case of any inquiry from any authority.

They said leaders of PPP are currently facing NAB references for setting high ratio of profit including terms and conditions for rental power plants (RPPs) and Independent Power Producers (IPPs).