Though the level of public discourse has been deteriorating since long, in one area of public interest, coverage of the IPPs, it has gone into the gutter. It is almost like the IPP Hunt: Season 02. Season 01 was executive produced by Mr Saifur Rahaman. There were some pilots in the intervening period, though.

IPPs are easy pickings. They are few with big, lumbering balance sheetsand, critically, a customer base of one, a hydra-headed one at that-NEPRA, PPIB, the GoP, now the NAB are just a few of the hydra-heads they have to deal with. Preternatural ability to deny verifiable factsperhaps can explainuninformed contributions to this debate by the likes of TV anchors, Aptma Punjab, brokers from Karachi, etc., except the IPPs.

Nightly media feeding frenzy, NAB’s selective leaks and other public and behind-the-scenescampaigns have had the desired effect on conspiracy theory prone lemmings. Conspiracistsprey upon our frustrations-we would have been a hyper-power, but only for the corrupt!

Who are the IPPs? They are the single largest, as individual and as an industry, investor group in Pakistan with the longest exposure tied to its real economy.Current season’s theme, you won’t believe it, is that the IPPs have made too much money!

So much so, that at one point no less than four GoP bodies were investigating them!

1:         Inquiry Commission on Debt, ICD

2:         Senate Committee on Energy

3:         Committee for Power Sector Audit, Circular Debt Resolution and Future Roadmap

4:         NAB and Nepra, directly or indirectly for ICD or the Senate Committee, etc.

Ideally such investigation would be done discreetly by a knowledgeable panel of specialists to know and to conclude and, most importantly, to ask the right questions. It is now reported that the ICD has dropped out. TheGoPcould still seek the help of IFC, ADB etc. for some expert input.

In addition to these GoP sleuths, the Jerry Springers of the electronic media have been hogging airtime slut-shaming IPPs in their nightly broadsides. They wave certain papers and start off with the Rs480 billion or so settled / paid by the incoming PML-N government in June, 2013 without caring to know that manymore hundreds of billions have been paid to the same IPPs under the same contracts and logic as those of the Rs480 billion!

There are two issues with this “Too Much Profit Thesis”? What does the counterparty say, from whom this profit has been made off? Second what if the IPPs, similar IPPs, do not make similar profits or losses?

Did the GoP owned power purchaser, the counterparty, overpay, including the Rs480 billion and wasit made to overpay? Whether Nepra, tariff awarding authority, had followed all the codal formalities in the award? Was there something criminal in the tariff award or payments by the power purchaser?  Was Nepra forced or bribed into granting these“lucrative” tariffs to the IPPs? If not, then is it a crime to win ‘lucrative tariff”in full public view after due process? If there was no crime committed in theaward, then what is the crime? It is a contract and GoP must live it. Rather than learning from the generations of PPAs and strengthening of Nepra to do a better job next time they have gone after Nepra, too.

Season 02 started with notices to 1-2,2002 IPPs, IPPs under 2002 Power Policy, six in all. Reportedly these 1-2 IPPs, listed ones, have made “much more money.” Other 2002IPPs are privately held and public does not know how much they “made” or did not “make”?

It would be interesting, and I hope the sleuths may like to know the profit and cash flows of the rest of 2002 IPPs. It will be interesting to know if 2002IPPs, almost identical tariffs,would report similar profits. What will NAB do to a 2002IPP, or any IPP, if its profit is less than that of the highly “profitable IPP peer(s)”!  Will it let it off the hook? Just because it did not make big money?

What shall Nepra and the power purchaser do, if IPPswith or without similar / identical tariffs are losing money or making “bigly” money? As a matter of fact Nepra has already spoken. On September 21, 2011, Neprawrote:

In fact the actual IRR earned by the IPPs seldom equates 15% allowed by the Authority in tariff determinations, as 15% IRR is based on predefined parameterswhereas actual results rarely match those parameters. For the projects already in operation, the actual IRR in many cases are reported to be higher due to various efficiencies, cost saving measures, more effective and professional project management by their sponsors.

“More effective and professional project management” can make more money for IPPs. No crime here.

GoP paid the same tariff / cash to a group of identical / similar IPPs. One made money and reported it, the others, may be they made it or may be they did not?We do not know. Nepra says, and rightfully so, it is not the GoP’s and Nepra’s headache!

Similarly Nepra quoted the power purchaser on March, 29, 2013, as NEPRA determined Tariff for HPGCL dated September 01, 2006 on the basis of Plant efficiency on Gas as 51.2% (Heat Rate 6666 BTU / kWh) and in HSD as 48.5% (Heat Rate 7037 BTU / kWh). It may please be noted that there is no provision to conduct heat rate test at COD or during the operation regime of the plant neither in the PPA nor in the tariff determinations.

There goes the heat rate test argument. Nepra goes on to write

The components of the tariff cannot be considered in isolation and outside the agreements between the power producer and the O & M contractor as well as power producer and Power Purchaser. Generation tariff is a package where loss in some components is compensated by surplus in the other tariff components. In view thereof tariff components cannot be considered in isolation.

In the absence of criminal activity, more or less profit is not a crime or calamity. Less profit may actually warrant more auditorial scrutiny!

There are about 80 or so IPPs. NAB started with 1-2 IPPs, the early harvest, and then cast the net wider. The hapless IPP investors and their employees suddenly land in NAB crosshairs with a big target painted on their backs and a scarlet letter on their foreheads.Rest of the IPPs,you better lose your sleepand expect knocks on your doors. If it has not happened already.

Where do we go from here? GoP must know by now that the IPPs are governed bya robust set of agreements and the GoPhas continued to lose in arbitration. In the LCIA, the reigning arbitration forum, GoP lost on account of non-availability following from non-availability of fuel which in turn was caused by non-payment of dues by the power purchaser.

In the LCIA theGoP lost again on account of interest on interest, payment date difference etc. dispute. Partly for these reasons the GoP had to settle another dispute with Rousch Power, controlled by MrRazakDawood, with bringing the non-availability case under OFME etc. Jerry Springers went off their rockers. The GoP folded and sent it back!Media pundits went into overdrive against MrDawood and Rousch. Take it media, the GoP was saved from another defeat in the arbitration court.

It seems the script writers of Season 02 want to force the IPPs to give the GoP a tariff cut, when there is no legal, moral or contractual case for that? How do you force a haircut then? Just unleash the state’s coercive power, thenewly fanged NAB, on the IPPs. Pick up IPP executives. Launch a media campaign and they shallbuckle. May be they will, may be they won’t.

Somebody somewhere in the bowels of Islamabad shall get a pat on the back, may be a good ACR. He and his bosses do not know that in the bargain new investors will dither and ask for even higher returns to compensate for these risks too. Tariff cuts are not a free lunch. Renegotiations with the IPPs are nothing new. In the previous rounds a few of those who renegotiated, went south, like Japan Power, Saba Power, etc.

The losers shall be the people of Pakistan, the rate payers of Pakistan. Investors shall shift their capital elsewhere. Bureaucrats shall move to Australia to die. Biggest losers shall be the great unwashed who will continue to live between power shortages and unaffordable plenitude.