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Tuesday October 08, 2024

IPPs brief top military leadership on power sector woes

Capacity payments on government plants (nuclear, hydel and RLNG) were five times that of all old IPPs combined

By Khalid Mustafa
September 03, 2024
A representational image of a transmission tower, also known as an electricity pylon. — AFP/File
A representational image of a transmission tower, also known as an electricity pylon. — AFP/File

ISLAMABAD: Top military leadership has also joined the efforts for making the power sector financially and operationally viable.

In this regard, owners of some independent power producers (IPPs) met the top military leadership here on Monday and shared their proposals on how to scale down the power tariff to provide relief to masses and industrial sector, to generate more economic activities.

According to sources, the top military leadership was sensitised by the private sector IPPs, saying the main problem lied with the government power plants that are getting Rs840 billion per annum, and CPEC [China-Pakistan Economic Corridor] power plants getting Rs650 billion as capacity payments at the value of dollar at Rs278. However, the IPPs, set up under 1994 and 2002 power policies, were getting just Rs130 billion at dollar’s value capped at Rs148 since 2021.

The military leadership was told that the capacity payment for a single Sahiwal coal power plant exceeded that of all the 2002 IPPs combined. The capacity payments on government plants (nuclear, hydel and RLNG) were five times that of all old IPPs combined.

The owners of six to seven IPPs met the military leadership separately in a group of two proprietors and briefed them about the current power sector issues. If the IPPs, set up under 2002, are fleeced more and their capacity payments made zero, the maximum relief the government could get would be Rs0.85 per unit for FY25, and Rs0.54 per unit for the 1994 policy IPPs. This totals only Rs1.39 per unit in pre-tax bill savings. Interestingly, in the meetings separately held, there was no one from the Power Division.

They explained to the military leadership that in 2021, the US dollar value for the IPPs installed under 1994 and 2002 policies had been capped at Rs148, which was why, their capacity payments had reduced to Rs130 billion, and more importantly they had paid the maximum portion of the loans to their lenders. In 2012, they agreed to reduce USD-based IRR from 15pc to PKR-based returns, effectively reducing their guaranteed US dollar returns to approximately 9pc. “Most of IPPs installed under 1994 and 2002 are going to retire as their power purchase agreements (PPAs) will end in two to three years till 2028, and some have already gone on to ‘take-and-pay’ mode after their contracts were over, so they are getting no capacity payments.”

They argued that further pressure on the private sector IPPs would send bad signals to investors across the board and it would hurt the future investment in various sectors of economy in the country. In the meeting, it was told that the electricity of Rs6 against one unit is being stolen in various distribution companies (Discos) all the time and the recovery through overbilling is still under way. The proposal to hand over the loss-making Discos to provinces has also been discussed and in that case, if provinces are unable to reduce the losses of Discos, then the losses will be deducted from their shares in the NFC award.

The IPPs also proposed the military leadership to make the under-construction dams and hydropower projects public limited companies in future, so that their shares could be floated through stock exchanges for masses. They told the leadership that every dam and project would be having a board of directors and they would hold an AGM (annual general meeting) to curb corruption and overcome inefficiencies in the dams and hydropower companies.