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Govt to buy out 11 IPPs to avoid Rs450 bn capacity payments

By Khalid Mustafa
April 28, 2021

ISLAMABAD: The federal cabinet Tuesday decided to buy out 11 IPPs based on furnace oil (FO) at discounted value of Rs150-200 billion to avert payments of their capacity charges of Rs450 billion that it is bound pay in remaining seven years of their contracts.

This is how the government can tackle the issue of capacity payment charges — an important component of Circular Debt — to some extent. The outstanding amount the government is to pay to all IPPs in the head of capacity payments for the current year stand at Rs900 billion which will increase to Rs1500 billion in 2023.

Tabish Gauhar, Special Assistant to Prime Minister on Power and Petroleum, briefed the federal cabinet meeting on Monday, with the prime minister in the chair, on the power sector, circular debt, reforms and potential solutions to the issues, including targets of reduction in losses and improvement in recovery.

The cabinet approved the revised Circular Debt Management Plan (CDMP) prepared by the SAPM, except the proposal of increase in tariff, to cope with the issue of capacity charges payments.

Gauhar told the cabinet the PML-N government had added 40-50 percent excess electricity to the national grid which would raise the capacity charges payments to Rs1500 billion by 2023. Raising power tariff was imperative to make the capacity payments, he maintained. But Prime Minister Imran Khan said masses were already reeling under inflation, and directed the finance and power divisions to evolve a way to avoid power tariff.

Gauhar proposed buying out 11 old power plants with 3100 MW capacity, contending they provide only 5 percent of electricity of their capacity in one year as per the economic merit order, but in return the government pays them Rs60 billion per annum under the capacity head. This makes every consumer pay Re0.60 per unit more in the head of capacity payments, he added.

“We can buy out the said IPPs at discounted value of Rs150-200 billion through PIBs and Sukuks, relieving the consumer of Re0.60 per unit burden. If the excess GST is eliminated, the consumer will get a relief of Rs0.85 per unit. If the taxes and duties on IPPs fuel charges are omitted, the consumer will have a relief of Re 0.22 per unit. Acting on these proposals, the power tariff can be reduced by Rs1.67 per unit,” the official sources quoted SAPM as saying in the cabinet.

“If no corrective measures including increase in tariff, reduction in losses and improvement in recovery and turning the loss making DISCOs into profit-making units are not taken, the circular debt will increase to Rs4.7 trillion from existing Rs2.3 trillion,” the sources quoted Gauhar as saying.

Gauhar, according to official sources, told the cabinet that the government would delicense its inefficient GNECOs of 3500 MW by September 2022. So far it has closed down 1700 MW GENCOs while the remaining would be made dysfunctional in 2022 to avert loss of Rs7 billion per annum once of all. The CDMP also mentions that the finance ministry should come up with full budgeting and timely release of complete subsidy requirement. It also says that finance ministry would lay off dues of Rs403 billion to 47 IPPs and Rs200 billion to IPPs set up under the CPEC umbrella.

The finance ministry should also budget the subsidy for AJ&K, including the budgeting of recovery gap of Power Holding Private Limited and IPPs markup. The CDMP also says the federal government should ensure the timely annual tariff re-basing and quarterly tariff adjustments (QTAs) passed on to the consumers per amended NEPRA Act with effect from fourth quarter of the current fiscal year.

According to sources, the SAPM said average recovery of electricity bill in 2020-21 stands at 92.07 percent. The power division has decided to improve it up to 94.90 percent in next financial year 2021-22, raising it to 95.98 percent by 2022-23.

He said the line losses currently stood at 17 percent which would be scaled down 15.70 percent in 2022-23. To make turn around inefficient DISCOs, Gauhar told the cabinet that high loss feeders will be outsourced, and managements of DISCOs would be handed over to private sector by December 2022.