Federal Minister for Power Awais Leghari told the Senate Standing Committee on Power that they cannot unilaterally terminate contracts with Independent Power Producers (IPPs).
He cautioned that this might create a conundrum like the one arising from penalties regarding the Reko Diq situation in Pakistan.
Financial Commitment to IPPs
While in the committeeCommitteerevealed that in the last ten years, 11 gas. And LNG-based power plants had cumulative capacity payments of 538 billion rupees. The government operated 13 furnace oil-based plants and paid them 760 billion for capacity payments. Such payments indicate the government’s huge financial obligations to preserve energy infrastructure in the country.
Review of IPP Contracts
The chairman of the Committee, Mr. Mohsin Aziz. Confirmed that the committee has been able to forward relevant agreements with the IPPs concerning all the matters within the scope of practice. The committee members have received copies of these agreements for review.
The purpose of assessing the market risk of the IPP was to improve the investment strategy. The National Electric Power Regulatory Authority (NEPRA) allocated profit returns between 15% and 16% to the IPPs. As pointed out by the Rand Corporation (which works directly with the World Bank). The profitability of 60-70% for IPP is reported. Which raises eyebrows as to the fairness of these agreements.
Issues with IPP Operations
Pakistan Tehreek-e-Insaf (PTI) senator Mohsin Aziz also referred to this report. Which highlights “Over-invoicing” by the IPP and “heating rate” where heat is not calculated accurately without adjustments. The influence of these actions has resulted in even higher consumer costs. Therefore straining the energy sector and the economy as a whole.
Senator Shibli Faraz, also a committee member, expressed dissatisfaction with the timing of these agreements and the persons behind them. He asked about the administrations that made these contracts, the power ministers who signed them, and the secretaries involved. Senator Faraz also opposed the IPP’ profits, noting that they even exceeded illegal profits from the drug trade.
Next Steps and Audit Suggestions. There’s nothing strange about the minister implicated in all the political plays responding a few hours after the broadcast to say that the Muhammad Ali Report also outlined a ‘heat rate audit’ for the IPP. Which has not yet been performed. He said he would wish to cut off the contracts with those IPP. He stressed that the contracts, which are no longer required, must be terminated in consensus with other parties.
Minister Leghari confirmed to the committee that the government is trying to provide a solution. And promised that good news would be reported soon. This topic explains why it is hard to manage the contracts on energy. And why one should always think twice before engaging in any radical decision. Which could result in important financial and legal consequences for the nation.
