Govt denies forced revision of IPP contracts

Pakistan on Monday dispelled the impression that independent power producers (IPPs) were being forced to revise agreements and conveyed to international development partners that they had the option of either walking away from negotiations or resorting to arbitration and forensic audit.

There has been a widespread perception that the IPPs have been coerced into revising agreements. The government has taken an initiative to amend the agreements in a bid to slash capacity payments to the IPPs, which caused a hike in electricity tariffs.

Consumers are paying Rs2.5 trillion to Rs2.8 trillion every year to those IPPs that do not generate even a single unit but receive hefty payments due to faulty agreements. There are several flaws in the IPP contracts which the government is trying to rectify.

In a meeting with the international development partners, Federal Minister for Power Awais Ahmed Khan Leghari informed them that negotiations with the IPPs were free, fair and transparent with the option of walking away or resorting to arbitration and a forensic audit. Leghari attended a detailed session with the development partners on power sector reforms and the way forward.

The development partners were led by World Bank Country Director Najy Benhassine and included representatives of the International Monetary Fund, Asian Development Bank, International Finance Corporation, KFW, German embassy, Foreign, Commonwealth & Development Office (FCOD), United Nations Development Programme (UNDP) and Asian Infrastructure Investment Bank.

While underscoring the importance of efforts to rationalise electricity tariffs for the economy, the power minister assured session participants that all negotiations with the IPPs were being held in a free, fair and transparent manner, as per terms of their agreements.

He apprised them of the reforms that the Power Division had undertaken to bring efficiency and discipline to meet targets, adding that electricity prices were being pushed to more competitive and affordable levels for all consumers, particularly the industry.

The reforms include transition from “take-or-pay” to “take-and-pay” clause, elimination of furnace oil-based plants and conversion from imported coal into local coal in power generation.

Leghari said an extensive and detailed study of power generation was being conducted, which revealed “we had not adopted the least-cost policy in the past but now it will be the least cost”. He stressed that the government was taking steps to engage all development partners and in that regard it had adopted an inclusive approach in policy formulation and execution.

Owing to transparency, the government has been able to slash around 7,000 megawatts from the Indicative Generation Capacity Expansion Plan (IGCEP) from the total committed quantity of 17,000MW, saving a huge amount of money in terms of expensive power.

The minister also pointed to the removal of transmission constraints through constructing Matiari Moro RYK lines, Ghazi Barotha FSD lines, putting in place reactive power compensation devices and battery storage systems.

He highlighted the process of splitting National Transmission and Despatch Company (NTDC) into Energy Infrastructure and Development Company and National Grid Company, provision of electricity to Special Economic Zones (SEZs) by developing a regulatory and contractual framework, service-level agreements with industries having captive power generation, installation of advanced metering infrastructure (AMI) and Asset Protection Management System (APMS) on 100% feeders.

Regarding the elimination of circular debt, the minister told the audience that the government wanted to create clear visibility and finish the task in five to eight years. Elimination of electricity duties and rationalisation of subsidies are other steps towards the rationalisation of electricity tariff.

The rationalisation of net metering is also on the cards, which is adding a burden of Rs150 billion on the rest of the consumers.

Additionally, inducing incremental demand through marginal pricing and long-term packages for long-term planning are the need of the hour since surplus power is not being used by anyone, which is adding to capacity charges.

Leghari apprised session participants of the wholesale electricity market, adding that the government was not going to buy any further electricity.