The Independent Power Producers (IPPs) may have alleviated Pakistan’s power shortages, but they may also have also brought Pakistan’s to its present state.

The 1994 and subsequent private power policies of the Federal Government rewarded investors generously, paying in U.S. Dollars with all variables at the cost of the country. The clause of 60% capacity payments, irrespective of whether power was purchased or not, has cost the country dearly. The current situation is that the capacity of IPPs’ is greater than consumption, but the capacity payments continue regardless. It seems, there has never been an effort to audit the IPPs to ensure that they are actually capable to produce power as per capacity payments. Also, there has not been a serious verification of IPPs claims of power supply to ensure they have actually supplied as much power as they claim. It is also incomprehensible that there is a strong resistance to an independent audit by the IPPs to verify power supply claims. If the power supply claims are accurate, the IPPs should welcome an audit.

The Private Power Infrastructure Board (PPIB) website suggests current power generating capacity to be 23,000 MW/h and another 14,000 MW/h projects are in the pipeline. But as per figures submitted to Senate’s Parliamentary Sub Committee by NEPRA the current generating capacity is already at 35,000 MW/h. The country’s power transmission capacity on paper is around 23,000 but the system is so outdated and faulty that actual capacity is considerably less. So, while capacity payments are being made, there is no way to carry the electricity to the consumer, hence the IPPs are receiving payment but utilisation of electricity is considerably less. Over time, more and more power projects have been added thus increasing capacity payments from Rs. 280 billion in 2015-16 to Rs. 422 billion in 2017-18 to Rs. 650 billion in 2018-19. With new projects coming online, these payments are expected to increase substantially. This is an increase of 232%, while the annual power demand has increased by only 30% in the same period. The question is why is the country paying for electricity it does not consume?

It is also surprising that payments are substantially in U.S. Dollars, even to those IPPs that have invested in Rupees. Only the import costs should be paid in USD, foreign investors should also be allowed profit repatriation, but profits of local investors need not be paid in USD. The power policies of successive Governments have proved to be very expensive for the country. It is quite possible however that when power policies were framed in 1994 and in subsequent years, the full cost to the country the ultimate impact on foreign exchange was not fully realized.

All this has resulted in massive increase in power tariffs recently as the country is paying for capacity payment for electricity it does not consume. Had the power rates not been increased by the Government, circular debt would have increased even further from the current level of Rs.1.4 trillion. The full impact of the higher capacity payments and devaluation has still not been passed on to the consumer fully and power rates may need to be increased further to contain the circular debt. There is an urgent need to revise the power policy and put a freeze on new projects until such time as a viable power policy is put into place and current power capacity is fully or substantially utilized.

More recently imported coal-based power projects have been set up under CEPAC, whereas the rest of the world including China is phasing out coal-based power plants. It would make sense to utilize domestic coal reserves at Thar, but to set up imported coal-based power projects make no sense at all. Some of the older IPPs are coming up for renewal and now is the time to right the wrong. Many of them are lobbying for renewal on old terms, this should not be done as they have already fully recovered their plant costs, therefore no further capacity payments would be justified, and the country cannot afford these exorbitant capacity payments anymore. Fresh agreements based on actual electricity uptake should be entered into and IPPs paid for electricity supplied at agreed rates.

The sooner the authorities concerned start a review and audit of IPPs, the better. If during the audit it is discovered that some of the IPPs have been over-billing, those should be penalised. However, all actions should be in accordance with the law and existing contracts in order to avoid a Reko Diq like situation.