ISLAMABAD: The Independent Power Producers (IPPs) are said to be preparing themselves to face a hard time ahead fearing the government will use all tools available to it to recover over Rs 100 billion from them under the garb of much-awaited inquiry report prepared by a nine-member committee, including a representative of ISI.

The committee headed by former Chairman SECP, Muhammad Ali and comprising Additional Secretary, Power Division- Member, a nominee of National Electric Power Regulatory Authority (Nepra)-Member, a nominee of Central Power Purchasing Agency-Guaranteed (CPPA-G)-Member, a nominee of National Power Control Centre(NPCC)-Member, a nominee of Federal Investigation Agency (FIA)-Member, a nominee of Securities and Exchanges Commission of Pakistan (SECP)-Member and a nominee of ISI-Member took 6-7 months to understand the root causes of the current mess in the power sector and finalize its report.

The report has now been submitted to the Prime Minister and Power Division for further strategy and action.

On January 11, 2020, Business Recorder, in its exclusive story had revealed that the committee which was not given facilities as per its wishes by the Power Division and Finance Division in its preliminary report had recommended the government to review PPAs with IPPs as some clauses extend undue benefits to the power projects.

On March 17, 2020 during a meeting of Federal Cabinet, some of the cabinet members were of the view that the response of Power Division on high cost of electricity with special reference to variance in guaranteed rate of return to the IPPs was evasive as it shifted the onus on the report of the committee.

Insiders claim that IPPs which had already withdrawn their claims won at the London Court of International Arbitration worth billions, will again approach the same court if situation requires, adding that the committee should have invited all the IPPs to hear their viewpoints.

Power Division has assured the Cabinet that the report of the committee under former Chairman SECP, a close relative of Minister for Power, would be submitted by the end of March 2020 and if the findings of the committee indentify any wrongdoings, Power Division would proceed against the delinquents, accordingly. The Cabinet Division, in its minutes used the word ‘Commission’ instead of committee.

The mandate of the committee was to identify and examine causes of the high cost of electricity with a special reference to private power generation i.e. IPPs.

The committee in its final report of 278 pages to the government maintained the view that the power projects are enjoying some financial benefits which will end with the expiry of PPAs but for the time being such benefits are being extended which need a review, the sources added.

The committee was allowed to co-opt any expert from government as well as private sector and engage to seek information and assistance from technical testing firms, Advisors, bankers, CA audit firm (A-rated category), legal advisors, insurance Advisors, Asset Management Company etc, or any other organisation or individual as deemed necessary; and seek record and information from relevant stakeholders as deemed appropriate for the purpose.

The report which, according to Secretary Power, Irfan Ali, has landed in the Power Division, has disclosed that the cost of installation of power plants by the power producers and under G to G agreements, power tariff, variation in fuel consumption, violation of merit order, guaranteed rate of return in dollars even to local investors are some of the key reasons behind heavy losses to the national exchequer.

The Debts Commission headed by Fazeel Asghar and National Accountability Bureau (NAB) are also investigating contracts with IPPs.

The committee led by Muhammad Ali has scrutinized the documents pertaining to the cost and tariff of more than 60 power plants.

The report which is yet to be discussed at the highest level and with the industry prior to submission to the Cabinet, claims that IPPs have unjustly pocketed Rs 350 billion on the basis of IPP policy 1994 as the regulator granted them 15 per cent profit but they earned 60 to 70 per cent profits annually. This was also claimed by a Senate ‘s Sub Committee headed by Senator Nauman Wazir who was also interviewed by the IPPs committee.

The committee has recommended the government to terminate capacity payment’s formula based on take or pay forthwith and recover overpayment of Rs 100 billion from IPPs.

The Terms and Reference (ToRs) of the committee were to review matters pertaining to the cost of setting up private power generation units in the country under various power policies, without limitation, whether under IPPs mode for under government ownership, approvals, financing arrangements, set-up cost, cost of over-runs if any, operating cost and cost models, revenues and return models, billing, cost to the government, role of government, its departments and various regulatory bodies etc, and identify any unethical or illegal practices, administrative procedural weakness and regulatory gaps that may have taken place and recommend the way forward to rectify these and review: (a) matters pertaining to the ‘ circular debt’ of the country, without limitation, the cause of build-up of circular debt, examine payments made from time to time to clear outstanding dues to the IPPs, examine causes for under collection of revenue by Discos, electricity tariff determination, policies and procedures, systematic issues, which may have exacerbated the situation, etc, and identify any unethical or illegal practices, administrative and procedural weaknesses and regulatory gaps that may have taken place and recommend the way forward to remedy these; and (b) policies and models of power sector globally and recommend the way forward for changes in the country’s power policy and structure of the sector including without limitation, generation, transmission, distribution, organizational set-ups, regulatory reform, governance reform, financial clearing, market-based mechanisms etc, with a view to ensure avoidance of circular debt in the future and reduction of cost of power to consumers.

The committee has also reviewed compliance of IPPs with the parameters and terms and conditions of various agreements signed with relevant government agencies/bodies which include the following areas: (i) any relaxation given to the IPPs in violation of policies/rules, including but not limited to tariff determination, financial closure, construction period, capacity payments and merit order etc; (ii) efficiency (machine as well as plant/ fuel) allowed in tariff and actual efficiency, frequency of efficiency verification, fuel costs and inventory etc; (iii) cost accounting mechanism and review of various cost components; and (iv) review of technology, capital costs and financial structure submitted for tariff determination

Talking to Business Recorder, Secretary Power Division said that he has discussed not yet gone through the report.

“I did not read the report so far. I will be able to comment on it once I go through it. This report is not from my tenure ,” he said.