ISLAMABAD: The parleys between Independent Power Producers (IPPs) and the government are reportedly heading nowhere due to latter’s “unrealistic” demands, well informed sources in PPIB told Business Recorder.

The newly constituted committee representing the government is headed by Chairman Federal Land Commission, Babar Yaqoob Fateh Muhammad and comprises an officer of Power Division not below a Joint Secretary, Muhammad Ali, former Chairman, Securities and Exchange Commission of Pakistan and Barrister Qasim Wadood.

The new committee is engaged with various IPPs to negotiate the amounts, rationale and mechanism of excess payments of the past under specific heads, systemic oversights highlighted in the report, reduction of interest rate payments on debt and other components, extension of debt tenor etc, and agree on changes required to ensure avoidance of these payments in the future.

Negotiation Committee may also look into excess payments which may not have been covered in the report.

The committee is negotiating on a claw back mechanism for sharing efficiency and other gains and savings in the future between power purchaser and IPPs. These may be subject to verification of various costs, implementation of cost accounting order, heat rate verification of various costs, implementation of cost accounting order, audit, etc. as the Negotiation Committee may deem appropriate.

The demands of the negotiation committee are unrealistic and if any highhandedness is shown on the part of government, the dispute will again land in London Court of International Arbitration (LCIA) as per the agreements where the government has already lost against nine IPPs.

“If the government thinks that the IPPs have pocketed profits illegally and in violation of the agreements, then they should be handcuffed and if they made profits in accordance with the policy and agreements, then why are they being grilled and defamed,” said one of the investors.

IPPs argue that the main issue is related to new plants and Discos. The committee’s negotiation should focus on capacity payments of new IPPs and action by Discos can reduce power tariff by Rs 3-4 per unit while the old plants are near the end of their agreement period and cannot contribute substantially to a tariff reduction.

With fifty percent reduction in Libor plus and increase in tenor of project from 10 years to 25 years, a relief of Rs 1.50 or Rs 2 can be made. The government can save up to 400 million dollars. The plants established under power policies of 1994 and 2002 can only contribute 10 paisa per unit relief to the government, they added.

The committee is urging IPPs to shift from take or pay to take and pay contract terms and indexation from USD to PKR.

The foreign investors, who are partners in IPPs are questioning the logic of the government’s approach.

The committee is also asking the IPPs to change their rate of return on investment and Internal Rate of Return (IRR) from USD to PKR basis without any USD indexation; and shifting from take or pay contract terms to take and pay contract terms. The committee will document the understanding reached with IPPs towards achieving the objectives of these ToRs and recommend IPPs be considered either for retirement or for detailed forensic audit.

The sources said, IPPs are being asked to return the excess amounts they received, which according to nine member committee’s inquiry report is over Rs 100 billion.

PPIB, which provides one window facility to the IPPs, contends that since IPPs are Pakistan’s development partners, they should be requested to review their profits instead of arm twisting them.