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Inquiry Commission Proposed To Examine Profits Of IPPs

sdsadISLAMABAD: Having secured substantial discounts from 10 independent power producers (IPPs) on arbitration costs, the government is expected to appoint a specialised inquiry commission to examine the prudence of capacity payments, currency indexation and higher than permissible returns to all the IPPs.

Briefing a sub-committee of the Senate Standing Committee on Power on Friday, member tariff of the National Electric Power Regulatory Authority (Nepra) Saifullah Chattah said the proposal for the inquiry commission had come from the IPPs advisory council and the regulator had endorsed it. The government, he said, was examining it so that its downsides were not heavier. He said the government’s experience with arbitration through the International Court for Settlement of Investment Disputes (ICSID) had not been good.

He said the commission would comprise international engineering, legal and financial firms, experts from Nepra, ministries of finance and energy, National Accountability Bureau, Securities and Exchange Commission of Pakistan (SECP) other stakeholders. Convener of the sub-committee Engineer Nauman Wazir said the panel would not recommend any change to the contract which should be honoured at all costs but some issues certainly required to be probed if their initial statements to get tariffs were not different from their performance. “Prima facie, overpayments have been taken out by the IPPs, for example, claiming efficiency standard at 45 per cent which might actually have been 46pc”, he said.

On the sidelines, a senior official told newspersons that 10 IPPs who had won international arbitration against the government had agreed through negotiations to reduce their mark up payments on overdue arrears from Kibor plus 4.5pc to Kibor plus 2pc. Also, they have agreed to apply mark up after 90 days of non-payment instead of existing 35 days while the mark up would now also be payable on outstanding amount once instead of compound interest rate.

As a result, the government was estimated to get a financial relief of about Rs11 billion against original cost of about Rs34bn awarded in favour of IPPs by an international arbitration. He said the two sides were in the last stage of signing a settlement agreement. He hoped the similar relief may also be forthcoming from other IPPs subsequently once a precedent was in place.

Nepra informed the sub-committee that it had responded to 11 out of the 17 questions it was asked and needed 3-4 days’ time to conduct the analysis of remaining questions and observations. The Nepra also promised to provide excel sheets of all the IPPs regarding their heat rates, efficiency, returns on equity and so on over the next couple of days. The committee led by Senator Nauman Wazir Khattak and comprising Senators Muhammad Akram and Agha Shahzaib Durrani. The Committee strongly recommended that respective members of Nepra from provinces should have expertise of one or more departments of the regulatory authority.

Mr Chattha told the committee that the 1994 Power Policy offered an upfront tariff of 6.5cents per unit with 13pc internal rate of return (IRR) along with dollar indexation and sovereign guarantee and about 6,030MW generation capacity was materialised.

Due to a number of concerns and apprehensions raised on the policy, the country went into shortfall and a revised policy was offered in 2002 but no foreign investor responded. The Musharraf-Shaukat Aziz government then invited domestic business houses. The policy was revised in August 2006 for 3,000MW that also offered dollar indexation on local currency investment and IRR was also increased to 15pc and yet only 1,200MW capacity could be materialised.

The committee was shocked to know that IRR on domestic investment was indexed to dollar and international arbitration was again allowed with sovereign guarantee. This was because the cost of business was going up amid criticism over tariffs and power contracts, the committee was told. Yet the demand kept growing and power sector investment did not pick up, plunging the country into yet another shortfall.

As a consequence, 2015 power policy was brought in that kept intact all other incentives, guarantees and both dollar and rupee indexation with increase in IRR to 17pc and yet investment did not flow in until the China-Pakistan Economic Committee projects were secured with almost 10,500MW capacity. Three policies together added 17,712MW. As such, the total installed capacity increased to 35,000MW of which dependable capacity was around 28,000-29,000MW and maximum electricity delivered this year was around 23,500MW.

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