MUSHTAQ GHUMMAN

ISLAMABAD: Pakistan Institute of Development Economics (PIDE) has proposed a complete ban on new Independent Power Producers (IPPs) and transit to B2B contracts once Competitive Trading Bilateral Contracts Market (CTBCM) is implemented.

In a letter to Power Minister, Sardar Awais Leghari, Vice Chancellor PIDE, Dr. Nadeem ul Haq stated that the IPP issues has become a huge debate, mostly based on impressions, however, PIDE research has suggested there should be a complete moratorium on new IPPs, no matter what source and Pakistan must uphold its commitment to existing contracts with sovereign guarantees.

The PIDE argues that re-contracting all IPPS as merchant plants is complex. Once the PPA is signed, renegotiation negatively impacts future investments, especially for countries like Pakistan with weak macroeconomic environments.

According to PIDE, contribution of IPPs commissioned under 1994, 2002, and 2006 in capacity payments (FY2025) is 15 percent. The debts of these projects have been paid off. Furthermore, the projects commissioned under 1994 are either retired or about to retire in the next few years. After the Power Sector Inquiry Report 2020, 46 IPPs formally signed new PPAs with the GOP.

Currently, all generation plants (public and private) are designed with capacity payments but there is hardly any monitoring (Nepra responsibility) of actual capacity (as per capacity payments) and availability. There is no verification of IPP power supply claims and what they supplied. Therefore, if the PPA allows, a detailed operational and financial audit of all IPPs must be done as soon as possible.

According to PIDE, under power policy 1994, there are 16 IPPs of 4,100 MW, 1995 Policy-1 (84 MW), policy 2002-IPPs 15, capacity 4864.5 MW, Policy 2006 41, 2861.5 MW and CPEC power projects 27, 13,048 MW.

The PIDE proposed that the burden of capacity payments can be minimized by maximizing its utilization. Above all, to recover capacity payments (Rs 2.1 trillion) sales need to be increased by charging a cost-based tariff to the industry. Making grid electricity attractive to productive sectors will also help reduce the circular debt burden. A detailed operational and financial audit of all power plants under the public sector must be undertaken and all those plants that have completed their lives, eg, GENCOs should be shut down.

The PIDE further proposed that the government should allow open access to market participants on a non-discriminatory basis and implement CTBCM by opening B2B market with a reasonable wheeling cost acceptable to both parties as these IPPs agreed during PPA negotiation that once CTBCM is implemented, they will transit towards the B2B market. Therefore, implementation of CTBCM is crucial. Older IPPs are also committed to moving to “take and pay” as CTBCM is in place.