Five IPPs face govt pressure to cancel deals

The government has urged owners of five Independent Power Producers (IPPs) to voluntarily terminate their power purchase agreements (PPAs) and shift to a “pay and take” model. 

The owners have been warned that failure to comply could result in severe repercussions. Out of the five, four IPPs were established under the 1994 policy and one under the 2002 policy.

According to a news report, the government has informed these IPPs that it will no longer pay capacity payments totaling Rs139-150 billion annually for the next three to five years as it has already made excessive payments, including capacity charges, returns on equity, and loan repayments.

The government’s task force pointed out violations of the original agreements by some IPPs, alleging that the companies had secured funding for other powerhouses by pledging their plants, an act deemed a clear breach of contract. These violations, according to the task force, are grounds for criminal proceedings.

Further investigations revealed that the IPPs reportedly engaged in fraudulent activities by overstating losses in operations and maintenance (O&M) costs from 2020 to 2024. These inflated costs allowed the companies to generate unjustified profits, worth billions of rupees.

An IPP owner reportedly proposed terminating the agreement in exchange for Rs55 billion from the government, along with handing over the plant. However, the government flatly rejected the proposal, stating it would not pay any such amount nor take control of the plant. The only option for the IPP owners is to unilaterally terminate their contracts.

The task force has called in the owners for discussions. They have been told to either voluntarily terminate the agreements or face a forensic audit of their financial records, which could result in the recovery of excess profits and legal action.