Pakistan could save billions if payments to IPPs be made in Pak rupee: report

ISLAMABAD: The change in few terms and conditions of the agreements signed with the Independent Power Producers (IPPs) in the past may be a good omen for the country as an amount of Rs4,700 billion could be saved by giving IPPs in Pakistani currency instead of dollars, says a high-level inquiry report.

A nine-member inquiry committee formed by Prime Minister Imran Khan under a former chairman of the Securities and Exchange Commission of Pakistan (SECP) on 7th August, 2019- mainly to unearth losses in the power sector and to some extent to take the country out of financial losses being faced due to high profits of IPP- has recommended in its  report that the government should bring some major change changes in the agreements with IPPs, who are earning high profits due to certain terms and conditions of their agreements.

In its recommendations, the committee has suggested to the government that basic tariff of IPPs should be changed in Pakistani currency instead of dollars as this change will make the country able to pay Rs8 billion in the next few years. And if this change is not made, an amount of Rs3,266 billion will have to be paid. Similarly, the profits to the IPPs owners should be given in Pakistani rupees instead of dollars.

The country could save Rs4,700 billion only with change of currency in the agreement, instead of Take or Pay contract. The government is suggested to revoke the practice of capacity payment based on ‘Take or Pay’ with the owners of IPPs.

A copy of the inquiry report available to Pakistan Today further discloses that the high cost of power tariff was due to a host of factors, including snowballing capacity payments, net hydel profit, transmission constraints, minimum plant factor provision for RLNG based plants, gas price anomalies and financing cost of circular debt.

Most IPPs had an investment payback period of 2-4 years, profits generated were as high as 18.26 times the investment and dividends 22 times the investment and under the 1994 Power Policy, 16 out of 17 IPPs invested a combined capital of Rs51.80 billion and earned profits in excess of Rs415 billion. The governments’ failure to contain the circular debt had cost the country over Rs4,082 billion in the past 13 years, with an annual loss of Rs370 billion.

The inquiry report also claims that the IPPs’ owners showed extra cost to get extra tariff at the time of the contract, with NEPRA failing to check the veracity of cost. The cost of the power plant prepared by the companies was also accepted by the authorities, it further reveals.