In addition to the belated notice of the IPPs and the killing capacity payments in PPAs with them, the complexity of the power supply and delivery business is often underestimated.
Misguided Advice
This misunderstanding leads to advice from individuals, including a former minister, to renegotiate or revise PPAs on a “take-and-pay” basis instead of the “take-or-pay” arrangement, treating it as a simple fix.
Lessons from Reko Diq
The experience with the Reko Diq contract has seemingly been forgotten.
Dealing with IPPs
While IPPs have manipulated the system to their advantage, the deals are final, and efforts should be made to mitigate their negative impacts through supply and demand management.
Learning from Past Mistakes
Mistakes may have been made in 1994 when the IPP option was new, but there is no excuse for repeating these mistakes in subsequent policies.
Economics of Electric Utilities
The economics of electric utilities and common industries are vastly different, requiring significant upstream investments before electricity can be produced, transmitted, distributed, and delivered to consumers.
Investment Allocation
Investments in the power sector typically allocate 60-65% to generation, 10-15% to transmission, and 25-30% to distribution.
Investment Preferences
Investors prefer generation investments due to their concentration and ease of management, while transmission and distribution investments are less attractive due to their long lifespan, wide geographical spread, and operational challenges.
Business and Financing Environment
The lack of a conducive business and financing environment has exacerbated the issues with IPPs, turning the situation into a significant problem.
Lessons from the USA
A similar situation occurred in the USA with the PURPA 1978, which led to surplus supplies and utility challenges, but they managed to navigate and reestablish themselves.
A Solution
Studying how the USA handled the situation could provide useful insights for resolving the current issues in Pakistan’s power sector.
A Humorous Note
On a lighter note, the Prime Minister should consider re-hiring the respected former minister to work exclusively on soliciting IPPs on a “take-and-pay” basis.
A Challenge
If the former minister secures even a single contract as a merchant plant at a lower cost than any other plant, he should be awarded the Pride of Performance and a lifetime portfolio in the Ministry of Energy.
