Government secures Rs1.571 trillion in savings from IPPs

ISLAMABAD: On Monday, the government announced that it has successfully negotiated approximately Rs1.571 trillion in savings on future payments to 27 independent power producers (IPPs) thus far, while one ‘unwilling’ producer will be subjected to a forensic audit.

According to Dawn, this information was shared during a presentation by a team from the power division, which included Federal Minister Awais Ahmad Khan Leghari, Special Assistant to the Prime Minister Muhammad Ali, and Federal Secretary Muhammad Fakhre Alam Irfan, before the Senate Standing Committee on Power, chaired by Senator Mohsin Aziz.

As per a slide shown to the Senate panel, “These savings will be transmitted to consumers via modifications in agreements and tariffs throughout the contracting period.”

It detailed that Rs411 billion in savings was achieved through the termination of contracts with five IPPs, Rs238 billion through the revision of tariffs for eight bagasse-based IPPs, and Rs922 billion in tariff revisions with 14 thermal IPPs.

The committee was also informed that negotiations were ongoing with 45 public sector power plants to secure additional savings. Power Minister Leghari reassured the panel that the government would neither impede solar energy systems nor impose any taxes on them.

SAPM Muhammad Ali mentioned that the government was disbursing Rs70-80 billion to the five IPPs whose contracts had been terminated, with Hub Power Company alone receiving Rs30 billion. He rebuffed any claims that IPPs were coerced into revising contracts through intimidation tactics. He indicated that around Rs300 billion in payables due to late payment surcharges were being waived through negotiations, including Rs100 billion already written off.

Tax exemptions to IPPs, corruption cost power sector billions

When Senator Shibli Faraz inquired about the lack of forensic audits despite billions being paid to IPPs previously, Ali stated that Pakistan lacked the requisite expertise to conduct a forensic audit of 50-60 plants and such audits would require substantial financial resources.

He said his committee had requested Rs22 million for such an audit in 2020 but did not receive any funds. However, he confirmed that an audit would be performed on the IPP that refused to participate in tariff revision discussions, stating that a forensic examination was underway for the IPP not engaging in negotiations.

Ali also acknowledged that IPPs had received excessive payments from the government by providing misleading information regarding fuel and efficiency standards, but establishing allegations of over-invoicing without strong evidence was quite challenging, and cautioned that such efforts could backfire, possibly leading to international arbitration initiated by sponsors. Therefore, he said the task force on IPPs was pursuing the matter through negotiations, having scrutinized the balance sheets of these plants over the past two decades.

Minister Leghari pointed out that the former government had failed to implement Muhammad Ali’s report concerning IPPs, highlighting that the current administration had already secured over Rs1.4 trillion from IPPs without bias or favouritism.

The committee was informed that the government had capped the return for power plants at 17 percent, down from the historically high rate of 35 percent in prior decades. SAPM Muhammad Ali revealed that the government had recovered Rs35 billion from power plants that had been disbursed by the federal government for fuel payments.

Furthermore, the government was actively negotiating with 45 renewable energy plants to lower profit margins to sustainable levels.