Investors in Pakistan’s power sector under siege — I

ISLAMABAD: The PTI government is desperately seeking foreign direct investment but at the same time those who invested and signed business accords to help the country overcome energy crisis are being coerced and insulted. The whole exercise is sending a wrong message to the local and foreign investors telling them not to invest in Pakistan.

The Chinese and Qatari companies that invested in power projects under the umbrella of CPEC and helped the country at a time when no one was ready to invest, are currently facing music by the intimidatory tactics of the accountability body. The investigation by anti-graft body against the CPEC power projects will certainly haunt and offend China and Qatar, who helped Pakistan at the difficult time. As a consequence, the Chinese investors are no more interested in Pakistan’s power sector, one of the top officials at the Power Division told The News.

Razzaq Dawood, Adviser to PM on Commerce, Textile, Industry & Production and Investment, told The News that the business community raised the issue of their undue harassment with Prime Minister Imran Khan last Monday. Dawood said the prime minister heard them intently and promised to look into it. The Foreign Direct Investment has already gone down by 50 percent and the treatment being meted out to investors in Pakistan is sending wrong signals to investors.

The bureaucracy is suffering from low morale due to the crude behavior of the anti-graft body. They have become so scared and demotivated that they are not prepared to take decisions. Federal Minister of Railways Sh Rashid mentioned this problem several times, even during tv talk shows.

The Tuesday's federal cabinet meeting with Prime Minister Imran Khan in the chair decided to amend the accountability law softening it towards the business community investing in various sectors including the energy sector. The anti-graft body on the other hand says every investor wants transparency and a transparent environment free of shady deals, corruption and kickbacks alone will bring more investors.

The anti-graft body was asked nine questions including if the country is fit for investment and why there is flight of capital and investors from the country. They were also asked why the anti-graft body is taking actions against IPPs and why the NEPRA officials are not inclined to work? The anti-graft body didn’t offer any specific answers but resorted to their oft repeated statement that every investor wants transparency which will boost investor confidence and pave way for more investments.

The Gallup Pakistan and the Gillani’s company also surveyed the opinion about the role of the anti-graft apparatus. As many as 59 percent Pakistanis expressed confidence in the accountability mechanism.

However, in several background interviews with the top mandarins of the anti-graft body, Power Division, power sector investors and NEPRA’s top officials confirm rising incidences of harassment and intimidation for the business community and in particular that of the power sector.

According to them, top officials at the Power Division, PPIB, CPPAs and NEPRA are routinely summoned by the anti-graft body. The members of NEPRA are quite upset as in the last one month they were unable to hold authority’s meetings since their professional regulators had to regularly appear before the anti-graft body bringing NEPRA’s work to a virtual standstill. Because of the abrasive behavior of the anti-graft body, no one is prepared to work as their predecessors (old members of NEPRA) are also facing the investigations.

This correspondent managed to discuss the issue with four members of the NEPRA who were unanimous that no work is possible in the prevailing intimidating environment. Furthermore, they apprehend if NEPRA invokes criminality for any IPP, for instance, under the 2002 power policy, then other IPPs having the same specifications will automatically closes down. This will exclude over 1,200 MW from the system exposing the country to massive loadshedding. One of the top officials at the Power Division confirmed to The News that NEPRA has refused to work any more. It has refused to give tariff to the Port Qasim coal based power plant at true up stage. The delay in tariff at the true up stage offended China and some of the Chinese companies conveyed their serious concerns to the Power Division.

The official said that now the Inquiry Commission on Debt, headed by Hussain Asghar, has started probing against IPPs for allegedly making huge ungainly profits. The investors approached the Power Division and said if they are involved in any breach of power policy and contract, then are ready to be punished. The top official said the issue will soon be taken up at the highest level as the treatment with investors is sending a wrong signal abroad to those who want to invest in Pakistan. He said the probe should be done by the experts who know the power sector thoroughly not by those (pseudo experts) hired by the anti-graft body.

He said the anti-graft body ultimately wants to pressure the investors to review the Power Purchase Agreements (PPAs) which are supported by sovereign guarantees with the backing of many in the corridors of power. Pakistan is already facing the fine of $5.9 billion given by ICSID in Reko Diq case after Pakistan unilaterally scuttled the agreement and about $800-900 million in Karkey Rental Power dispute. In view of this, the anti-graft body should avoid stressing investors to review PPAs. However, Prime Minister Imran Khan assured the business community on June 20, 2019 that they will not review the power purchase agreements (PPAs) signed with the Independent Power Producers (IPPs) saying the government has extended sovereign guarantees against them.

Talking to The News, famous business tycoon Iqbal Dadi from Karachi said reviewing the PPAs with IPPs is not possible as the government has extended the sovereign guarantees and if the government goes against them and starts reviewing the PPAs, then the government will be confronted with international legal repercussions as the IPPs can drag the government to international arbitration. The top decision makers in the PTI government and senior officials privy to the developments said they are also extremely perturbed and fearful of the ongoing harassment and arm twisting of the investors, saying it will create hurdles in luring investment for the government in the renewable energy sector. The government wants to prioritise electricity generation through wind and solar mainly to harness cheaper electricity and mitigate the escalating capacity payment charges. "If the coercion by the anti-graft body continues unabated, the government will not be able to lure investors in renewable sector," they felt. According to the official documents available with The News, the anti-graft body has started investigations against 88 IPPs (Independent Power Producers) under various stages. The anti-graft body has also started investigations against 16 gas based captive power plants, six old plants that include Agar Textiles Private Limited, Meko Tex Private Limited, Fateh Textile Mills Limited, High Tech Pipe and Engineering Industries Private Limited, Salim Yarn Mills Private Limited, Roomi Fabrics Limited. Ten new plants are also being investigated that include Omni Power Private Limited, Anoud Textile Mills Limited, Thatta Power Private Limited, Luck Cement Limited, Agar Textiles Private Limited, Shikarpur Power Limited, Dadu Energy Private Limited, Naudero Energy Private Limited, Galaxy Textile Mills Limited and Roomi Fabrics Limited. It also includes 22 bagasse based power plants (Shakar Ganj Sugar Mills Limited, Kamalia Sugar Mills Limited, Shakar Ganj Energy Private Limited, Ramzan Sugar Mills, Noon Sugar Mills, RYK Sugar Mills Limited, Jamal Din Wali Sugar Mills Limited, Humza Sugar Mills, Thal Industries Corporation Limited, Indus Sugar Mills Limited, Ashraf Sugar Mills Limited, Bandhi Sugar Mills Limited, Tando Allah Yar Sugar Mills Private Limited, Chamber Sugar Mills, Faran Sugar Mills, Habib Sugar Mills Limited, Mehran Sugar Mills Limited and Sanghar Sugar Mills limited, JDW Sugar Mills Limited, Al-Noor Sugar Mills Limited, Deharki Sugar Mills Private Limited, and Al Moiz Industries) and four solar based power plants (M/s QA Slar Private Limited, M/s Appolo Solar Pakistan Limited, M/s Crest Energy Pakistan Limited, M/s Best Green Pakistan Limited ) and two coal-based power plants (Qasim Port Coal Power Plant and Sahiwal Coal Power plant).

The IPPs installed under 2002 power policy are also under the radar of the anti graft body. It is also conducting probe against oil fired plants under the 2002 policy, which includes Nishat, Nishat Chunian, Atlas, Liberty Tech, Attock and Hubco Narowal. The anti-graft body is also making up its mind to probe into the RLNG based power plants established by the federal government at Bahadur Shah Haveli and Balloki and other two RLNG based power plants set up by Shahbaz government, one at Bhikki and the second at Trimmu. Top officials at Power Division also told The News that the anti-graft body has also indicated that it plans to review the wind plants. "And that essentially covers everything put up in the last 10 to 15 years." The anti-graft body has tried, in accordance with the documents in possession with The News, to make a point that power projects with same specifications are set up in India and Bangladesh at a comparatively lower tariff. The premise conveniently ignores the bitter fact that Pakistan is a high risk country with political instability and inconsistent economic policies. Whereas in Bangladesh and India, there is continuity of commercial agreements with political stability and more importantly there is also an enabling and investor friendly environment, but in Pakistan, the political instability, law and order situation and deviation of commercial agreements despite sovereign guarantees always forces the investors to seek higher rate of return to ensure the safety of their investment.

However, the anti-graft is conducting investigations on the plea that the IPPs in order to seek high tariff present falsified, deceptive and fraudulent figures as the costing factors. The Nepra officials being hands in glove with the IPPs accept the falsified and fraudulent cost without verification and checking the efficiency level of the power units.

"The current business environment of the country is quite suffocating as the business community is under tremendous duress and many business tycoons have virtually left the country. A business tycoon with his family surrendered his Pakistani citizenship and opened a business enterprise in Malta against the backdrop of severe intimidating environment. And many are in process of making up their mind to leave the country," some notable business tycoons of the country told The News. "We are ready for the punishment under the law of the land if any IPP is found breaching the power policy and power purchase agreement (PPA)," they said.

Now the question arises as to why the business community particularly those who invested in the power and LNG sectors are feeling harassed and coerced. The foreign and local investors installed power stations under sovereign guarantees. But when the country’s towering business personalities are summoned by the anti-graft body and forced to sit there for a long time every day, besides being named and shamed in the media as proven criminals without proving any wrongdoing, it hurts their reputation irreversibly.

The industry sources again emphasized that if a company, regardless of origin, has violated a law or a policy, it should be taken to task but only after having concrete and prosecutable evidence. If someone has not violated the law or contracts, but has managed to do better than expected because of their management expertise, cost cutting, reinvestment, or just change of each rate environment, they should not be treated as criminals, representatives of some of the business houses said. There are others who have done worse than expected. In these situations, honoring agreements while asking for mutually agreeable adjustments in the contracts under the spirit of cooperation will yield more results rather than undue pressure. When the anti-graft body defames businessmen when they have not done anything illegal, they will fight back to protect their reputation more than their money in that project. Khalid Mansoor, CEO Hubco and executive member of IPPAC (Independent Power Producers Advisory Council) while talking to The News confirmed that apart from the investigations by the anti-graft body, the Inquiry Commission on Debt has also started probing into the IPPs affairs. "We are asked to submit the whole details of power plants starting from tariff petitions to CoD and then to the status now. We are ready to fight our case at every level, but we are being maligned and vilified." He said Pakistan is a high risk country and it ranks at number two after Iraq, then followed by Eygpt, Turkey, Bangladesh, India, China, UAE and US.

But our competing economies, he said, such as Bangladesh and India pose lesser risk in terms of investment and this is why the investors do not prefer Pakistan. More importantly in the case of India and Bangladesh the successive governments always honour the commercial agreements but in Pakistan the situation is otherwise. Until now, he said, he does not feel the government wants to review the power purchase agreements (PPAs). However, if the government intends to review the power purchase agreement unilaterally, the IPPs will certainly move London arbitration under the terms of the contract.

He also mentioned when the IPPs won their case in London arbitration courts. However, the said the issue is being settled with the willingness of the government and the IPPs may lower the due payments from government as the country belongs to us. “But, we will go by the book by invoking the dispute mechanism clause enshrined in the agreements.’’ Khalid Mansur also said an impression has been made in the media that the IPPs are mopping huge profits of as much as 61 percent. He said this is the accounting profit not the actual profit of the IPPs. In the 61 percent profit shown as accounting profit, there are many heads such as insurance, debt and its servicing and O&M. If the amount is deducted as it ultimately goes to insurance, lender and some is spent in O&M, and then the rest 15 percent is the return of the IPPs.

"So much so, that foreign companies from China, Qatar and other countries who invested in CPEC power projects are facing investigation by the anti-graft body knowing they helped the country get out of the energy crisis under a government’s policy in the presence of strong regulator — NEPRA."

Khalid Mansoor further said there is an impression that investors in the power sector are making illegal, windfall profits and if that is the case, then why those who invested under the 1994 power policy have not invested more under 2002 power policy and why those who invested under the 2002 power policy were not part of those who invested under the 2013 power policy. Similarly, why those who invested under 2013 power policy are no more part of those who installed IPPs under the 2015 power policy. This is a bitter fact that one who invests in Pakistan under one policy does not dare to invest more under other policies as investors are time and again harassed and subjected to coercion. Except the Fauji Foundation which established Fauji Kabirwala power plant under 1994 policy and went on to establish Fauji Dharki power plant under 2002 and under 2015 policy, it also set up three wind power plants.

When asked as to why there is an impression that IPPs are hesitant in getting the heat rate audit of their plants, Mansoor said the IPPs representatives offered twice to get heat rates audited to the Nawaz government in the presence of the then Finance Minister Ishaq Dar making it conditional that after the audit, the government will treat the IPPs based on actual basis heat rates, but the CPPA officials refused the proposal, saying it will incur losses to CPPAs. More importantly, he said, NEPRA is responsible for due diligence of every power project and for their tariff. The investors start installing the projects under Power Purchase Agreement. So if the probe is required, it’s okay to include the government and regulator’s officials and not the investors. "However, we are ready to get investigated by the anti-graft body but it would be better if it is done in-camera and our names are not made public and run in electronic and print media as it compromises our credibility. We have to run businesses and do not want to see ourselves branded as criminals in the eye of our employees. More importantly we do not feel encouraged to invest any more in the country,’’ he said.

The more bitter fact is that the investors have virtually started repenting for investing in Pakistan’s power and LNG sectors, though they were lured and attracted and compelled to invest to bail the country out of energy crisis. According to the top officials at Power Division, the rate of return in power sector ranges between 5 to 25 percent with dollar indexation. Highlighting the history of IPPs, the official said under the 1994 policy, the tariff was offered at 6.5 cents to investors. The-then PPP government, he said, had constituted a commission which recommended 6 cents for power tariff, but the World Bank recommended 6.5 cents per unit tariff to the-then government, arguing that 6 cents per unit was not practical. The return on investment was at 12.5 percent. But those who invested under the 1994 policy faced tough time during 1997-1998 and they were harassed and arm-twisted to review the Power Purchase Agreements (PPAs). The investors from Europe, Japan and the US who invested in Pakistan under the 1994 policy left the country, never to return.

However, under the 2002 power policy, the-then prime minister Shaukat Aziz during the Musharraf regime offered to foreign investors 15 percent rate of return with US dollar indexation, but to local investors’ the rate of return was in rupee terms. Later on, Mr Aziz amended the policy and also offered the local investors 15 percent rate of return with US dollar indexation. At that time value of dollar stood at Rs60 which has now increased to Rs160 and this is the main reason that the profits of the IPPs have increased. However, some IPPs have invested more in their plants to increase the efficiency gains but they didn’t breach the contracts and respective power policies.

When Fukushima Daiichi nuclear disaster took place in Japan, it was decided by the Japanese government that it will not run its nuclear power plants anymore rather it will cater to its energy needs through renewable energy. The Japanese government at that time offered 38 cents per unit tariff for installing solar plants to the investors. Those who invested at that time are still getting the 32 cents per unit as the Japanese government continues to honour the agreement though the solar technology has advanced and now it has become cheaper.

The correspondent also sent a questionnaire to the anti-graft body on July 8, 2019 which took one and half weeks to say it will respond in detail to every question, but at the end of day, the answers were not in detail. Infact they skipped replies to many questions.

Following is the questionnaire for the anti graft body.

Q: The IPPs say if they are involved in any kind of deviation of power policy and the contract, they are ready to face music but if they are not involved, then the anti-graft body's investigation is only harassing the investors. Please respond in detail.

Q: I have come to know that the anti-graft body has started probing against IPPs, captive power plants and new CPEC power projects that include Port Qasim power plants installed by Qatari and Chinese investors, Sahiwal coal power plant installed by Chinese companies. Don't you think it will send a wrong message to China and Qatari investors?

Q: The power plants are set up under power policy having incentives for local and global investors. But the investors are summoned, harassed by the anti-graft body arguing that with the connivance of the government agencies (PPIB, CPPA), Nepra officials managed to approve their higher tariffs. Investors always want maximum dividends, don't you think if there is any wrongdoing, then the power policy, govt officials and Nepra functionaries should be held responsible as the PPIB makes the petition and NEPRA carries the post-mortem of the petition and gives the tariff through due diligence and when the project takes shape, the regulator at the true upstage also goes through every information investors have already given in the petition and then finalizes the tariff. So my question under this scenario is to why the anti-graft body is taking on the investors?

Q: I have come to know that in the last eight months of the PTI government, the capital flight of billions of dollars has already taken place and many business tycoons are making their mind to leave the country and shift their business outside the country, don't you think the anti-graft body shouldn't harass local and international investors as it will send wrong signals. Why the anti graft body doesn't keep the factors in its mind that for investors Pakistan is a high risk country in terms of investment as instability, law and order situation and changing of the agreements with sovereign guarantees have been the hallmark of the country and under this scenario, don't you think it is not logical to compare the tariffs of the projects of one kind and specifications installed in Pakistan with tariffs of the same nature of projects set up in India and Bangladesh where in stability, law and order situation and continuation of agreements is very much there.

Q: The Nepra was subjected to too much harassment owing to which the regulator was unable to take any decision bringing everything to a standstill. The authority failed to hold meeting many times as the professional officers were being grilled by the anti-graft body. Please respond.

Q: NEPRA says it has flawless system of giving tariff. It says there are various mechanisms such as upfront tariff, cost plus and competitive modes. And the projects being probed are given tariffs under different modes but the anti graft body says why the tariff given under upfront mode is higher than the tariff of the competitive regime. Please respond.

Q: The anti graft body is investigating solar plants, captive power plants, bagasse plants, and CPEC power plants. I want to know exactly what's the number of total plants the anti-graft body is probing as it is authorized to start a probe after complaint verification.

Q: After the nuclear power plants debacle in Japan, the Japanese government offered investors 38 cents per unit tariff for solar plants but even today they (investors) are getting the same tariff despite the fact that solar technology has now become cheaper but the Japanese government continues to honor the costly agreements (PPAs). However, here the anti-graft body wants the IPPs to modify the PPAs backed with sovereign guarantees. Under this scenario, the anti graft body’s probe is being used to modify the PPAs. Don't you think this will force IPPs to go for arbitration against the country.

Q: The Nepra officials say if criminality against any IPP is invoked, other IPPs having the same specifications and tariffs will automatically be forced to close down. As the relevant Nepra officials will remain unmoved on this account fearing the anti-graft body, it will cause darkness in the country. Need your comments.

Q: The anti graft body is also probing the heat rate audit of IPPs but I know that when the IPPs had offered the government heat rate audit implemented on actual basis by CPPAs, the government backtracked pleading it will harm the interest of CPPA. So under this scenario, will the anti-graft body continue to probe into the heat rate audit?

Ultimately, the anti-graft body replied to a few questions, skipping many questions, saying that the case of NEPRA is subjudice, and queries about NEPRA cannot be addressed at this stage as well as in the light of the direction of Honourable Supreme Court of Pakistan. Till the filing of reference, the anti-graft body will maintain secrecy.

As far as investors' confidence is concerned, the anti-graft body said every investor wants transparency and if there is transparency in the country, more investors will come. Kindly avoid speculations in this regard as the anti-graft body is an apex anti-corruption organization of Pakistan. As per recent survey carried out by Gillani and then by Gallup, 59 percent Pakistanis have shown confidence over its performance.

The anti-graft body is committed to eradicate corruption from Pakistan with iron hands by adopting "Accountability for All” policy across-the-board and our actions speak louder than words. The anti-graft body always works according to law. The anti-graft body is the only organization in Pakistan which has 70 percent conviction ratio in the respected accountability courts.