How IPPs drain Pakistan’s economy in breach of contract?

ISLAMABAD: Independent power producers (IPPs) continue to play havoc with Pakistan’s economy while taking advantage of the contract.

According to sources, IPPs received billions of rupees from the government of Pakistan without generating electricity. Faulty contracts were clinched with these companies, and as a result, the Pakistan government and the general public are paying the price.

IPPs were found to have over-invoiced, making wind plants of the same capacity in Pakistan four times more expensive than in Bangladesh and Vietnam.

Despite Pakistan’s coal reserves, IPPs remained dependent on imported fuels such as high-speed diesel and coal for power generation, leading to the production of costly electricity, said a report in Express News.

The IPPs failed to generate electricity proportional to the fuel they imported and also received billions from the government for plant maintenance, though less than a quarter of that amount was actually spent.

Despite repeated insistence from the government of Pakistan, IPPs remain reluctant to undergo a forensic audit. Alarmingly, the government bears not only the insurance costs of the IPPs but also the setup costs.

The government of Pakistan also granted tax, duty, and insurance benefits to IPP owners. Despite covering all expenses, ownership of these plants will not revert to the government after the contract period expires.

Although most IPP owners are Pakistani citizens, contracts were deliberately signed under the names of foreigners.

Energy sector experts say that heavy payments to IPPs have made it difficult for the government to invest in other key sectors. IPPs have already earned hundreds of times their original costs, and the contracts should be reviewed. Most IPPs in Pakistan are controlled by a few influential families, and their collusion has cost the government billions. Some IPPs, however, are now willing to negotiate and voluntarily reduce prices.

Earlier, the Ministry of Energy (Power Division) disclosed that the government plans to shut down five independent power produces (IPPs) amid ongoing negotiations with around 100 IPPs.

According to reports, the discussions will focus on addressing profitability and operational challenges within the energy sector.