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August 24, 2019

Investors in Pakistan’s power sector under siege — II


August 24, 2019

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. In fact, 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 sub judice, 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.

(Earlier part of the story was carried in The News edition of Friday. This was the final part)