Govt plants, private IPPs to be treated alike

ISLAMABAD: In a major initiative, the government has decided not to differentiate between private IPPs and government powerhouses when it comes to making them operational on take-and-pay mode.

This was disclosed on Tuesday by one of the top functionaries who are members of the task force on Power Sector Reforms. The official is also playing pivotal role in the negotiations with the IPPs.

“We have decided to get the government out of electric power business. The powerhouses owned by government generating 52 percent electricity would also be shifted on to take-and-pay mode. The government would finance them only to make them operational”, he said. The government would reduce capacity payments of its plants to the minimum level, he said. It has also been decided not to get Return on Equity on its plants based on existing take-or-pay mode, he added.

“This is how the private IPPs and government power plants would be given same treatment. The electricity would be purchased from government power plants based on take-and-pay mode. The payment would be paid only for electricity to be purchased. Return on Equity is to be paid on take-and-pay basis”, he elaborated.

To a question, he said the task force would take at least two months more to finalise recommendations and actions to be taken to bring down power tariff. It would make power sector financially and operationally viable and bar the masses from staying away from grid electricity, he said.

However, the government would pay the loans of its plants, and would go for re-profiling of loans the government power plants (nuclear, hydropower, RLNG and coal-based power plants) got from the banks, he said.

Government is also in contact with the Chinese government for re-profiling the loans to increase loans’ payment tenure from 10 to 20 years, he added.

The official said, “We have already asked five IPPs — four set up under 1994 policy and one under 2002 policy — to voluntarily scratch down their power purchase agreements (PPAs)”, he said.

The government has decided on the recommendation of National Transmission and Dispatch Company (NTDC) it would neither purchase any electricity from them nor pay capacity payments to them.

He said the period of their contracts is still left in the range of 3-10 years, alleging they have already pocketed windfall profits. He said Pakistan cannot afford high power tariffs and cannot provide relief to inflation-stricken masses.

He said that because of high capacity payments, the economy has nose-dived. God forbid, it might collapse if it continues. “The message has been conveyed to the said IPPs”, he said

He said that if any IPP doesn’t terminate the contract, its forensic audit will be immediately started. He alleged it has been found the said IPPs wrongly showed losses in the head of O&M during 2020-24, saving billions of rupees.

He alleged the owner of an IPP got the loans by pledging power plants’ asset which he could not under the agreement with the government. The official claimed the government paid the loans of his plant and Return on Equity, alleging the owner generated the loan on the plant’s asset which is a sheer breach of contract.

“We would save Rs300 billion in the head of capacity payments that are to be paid to them in next 3-10 years. This is how consumers would get relief of Rs0.60 per unit equal to Rs60 billion in one year”, he said.

The government has given five IPPs some days to terminate their contract voluntarily. They would have to face a forensic audit if failed to do, he said. The task force has already found their massive wrongdoings, he alleged.

He said 17 more IPPs installed under 1994 and 2002 policies have been identified. These IPPs would switch over to take-and-pay mode from take or pay mechanism. The government, he said, would continue to purchase electricity from them on take-and-pay mode till private power market is established.

“However, once the private power market regime is established, the said 17 IPPs would be allowed to sell electricity under CTBCM (Competitive Trading Bilateral Contract Market) regime”, he said.

“We are on our toes to establish CTBCM within one-and-half to two years’ time so that IPPs could sell electricity to their clients by using the wheeling charges”, he added.

He said Rs26 per unit as wheeling charges would not work. The charges should be reduced in a way that CTBCM could work properly, putting the country on the way to progress. FBR needs to reduce its revenue collection through electricity bills, he said.

The government is currently mopping Rs800 billion per annum as revenue from electricity bills. It means an electricity consumer pays Rs8 per unit in the head of taxes, duties and surcharges. If taxes, duties and surcharges are reduced by 50 percent, tariff would plunge by Rs4 per unit.

The official said task force is endeavouring to reduce tariff of wind and solar power plants. Some solar plants are charging Rs27 per unit which should be at Rs7 per unit, and wind IPPs are getting Rs40 per unit which needs rationalisation, he said.

He said, “We will also engage with wind and solar IPPs to bring down their tariffs”.

The point of view of none of the IPPs on the issue could be obtained.