Saturday September 18, 2021

After sugar, wheat, PM Imran Khan stares down power mafia

ISLAMABAD: While the dust of sugar and floor scandals is yet to settle, an annual swindling of over Rs100 billion by the power sector is appearing on the horizon as a major scam.

The nine-member committee headed by ex-SECP chairman Muhammad Ali has traced the Independent Power Plants (IPPs) scam minting over Rs100 billion annually. The first ever inquiry report of 278 pages has revealed that the wrong doings are not only limited to the true up costs of IPPs and the powerhouses installed under government to government arrangements, but also in their tariffs, fuel efficiencies, economic merit order, guaranteed rate of return in USD and certain conditions in purchasing the electricity from powerhouses have inflicted an irreparable loss to the national kitty.

According to the official sources the committee chairman has already briefed the prime minister over its findings. The PM is very upset over the monumental increase in IPPs profits resulting in massive surge in circular debt and electricity tariff. ‘The IPPs that were installed in the country as per the Power Policy 1994 have unjustifiably pocketed huge profits of Rs350 billion.’ Under the government policy, Nepra allowed 15 percent rate of return with dollar indexation, but power plants are making 50-70 percent annual profits prompting the nine-member committee to recommend to the government to immediately do away with the capacity payment formula based on ‘take or pay and recover the amount of Rs100 billion from IPPs.’ Imran had on August 7, 2019 constituted the committee headed by former SECP chairman Muhammad Ali. Besides representatives from ISI, FIA and SECP, eight more institutions were part of the committee. The committee submitted its detailed findings and recommendations to the Prime Minister in its report: ‘Power Sector Audit, Circular Debt Resolution and Future Roadmap. The nine-member committee conducted due diligence of the documents pertaining to the costs and tariffs of more than 60 power plants. Interestingly, all the members of the committee were unanimous with the findings and there was no dissenting note in the report.

It bares the bitter fact that the power houses inflated their true up costs with additional increase of Rs 2-15 billion to manage the higher tariff from National Electric Power Regulatory Authority. More importantly the cost of coal-based power plants was artificially increased by Rs30 billion. However apart from Nepra, none of the relevant institutions verified the cost of power plants independently through any third party.

The report further says that the power purchase agreements with entrepreneurs of power houses were inked on ‘take or pay’ basis under which the government has paid billions of rupees in the head of capacity payments even when the power houses were non-operational or when the electricity demand was reduced. In the ongoing financial year, the government has to pay Rs900 billion to power houses as capacity payments and will pay Rs1,500 billion in 2025. Such agreements not only caused huge losses to the national exchequer but also piled up unprecedented financial burden on masses. Now the government with ailing economy is unable to pay capacity payments more. And to pay the capacity payment, the government will be left with no option but to increase the power tariff to unimaginable levels. The report also says that power houses factually use less fuel and earn unjustifiable profits. Furthermore, they submit faulty statements with Nepra to this effect. The report also blamed Nepra for not conducting the fuel efficiency audit of the power houses due to which the circular debt has increased to over Rs1800 billion. The power generation companies are pocketing profit of 50-70 percent instead of 15 percent which is unprecedented across the whole region.

It suggested to the government that the guaranteed rate of return for power houses should not be more than of 4 to 5 years, whereas it was extended to IPPs up to 25 years. It is a general impression in the market that power houses manage to retrieve their total cost within one to two years’ time mainly because of showing exaggerated costs, high tariffs and high volume of guaranteed rate of returns. According to the report, most of the power houses (IPPs) were installed in Pakistan through offshore companies.

It asked the government to carry out the forensic audit of the costs of power houses setup under power policy 2002 and also asked for verifying the cost of technology used in the power plants in other countries. The prime minister had directed the committee to prepare the report in three months. However, because of difficulties in acquiring the documents of the power houses, and the highly technical nature of the inquiry, the committee took eight months to complete the report.