Hubco likely to follow suit: Four IPPs ink deal to annul pacts early

ISLAMABAD: The federal government’s work on different Independent Power Producers (IPPs) has started delivering results as four IPPs, M/s Atlas Power, M/s Saba Power, M/s Rousch Power and Lalpir Power have initialed (signed) premature scrapping of pacts whereas Hubco is likely to follow suit on Tuesday or Wednesday, well-informed sources told Business Recorder.

The Task Force on Power Sector, which also comprises two senior security officers besides lawyers on the board and experts from SECP, PPIB, CPPA-G and Nepra played a key role in convincing IPPs, established under pre-1994, 1994 and 2002 Power Generation Policies to renegotiate.

Three IPPs are M/s Hubco Power, M/s Rousch Power and Lalpir Power, which fought till the end but ultimately showed leniency on premature termination of Power Purchase Agreements (PPAs). However, there are differences between Hubco and Government team on amount of Rs 1 billion.

Govt set to announce revised deals with IPPs

The government believes that it will save Rs 325 billion on the remaining life of five IPPs (3-10 years), the sources said, adding that the government has shown willingness to pay previous capacity dues of five IPPs but not interest as some of the IPPs have accused the government of defaulting on pacts. The saving from termination will be of Rs 0.65 per unit.

According to Power Minister, Sardar Awais Khan Leghari, consumers’ tariff will be reduced by up to Rs 7 per unit as a result of these negotiations, debt re-profiling and moratorium on debt payments to Chinese IPPs and transmission line project. CPEC projects would bring Rs3.5-3.75 per unit relief. Reduction of RoE of public sector power projects and negotiations with power projects of 2006 policy will further reduce tariff.

Currently, share of capacity payment is Rs 19-20 per unit which is over 50 per cent of total price of electricity sans taxes, surcharges and TV fee of Rs 35 per consumer which also constitutes 35-40 per cent of total electricity bill. Suggestions are also under consideration to force wind power projects to revise their tariffs.

Prime Minister Shehbaz Sharif and top brass of Power Division have already argued that revenue collection through electricity bills must be done away with. Incumbent Chairman Federal Board of Revenue (FBR), Rashid Mehmood Langrial, as Secretary Power Division had opposed using Discos as tax collecting agents. However, it is unclear, if he has changed his stance after taking charge as Chairman FBR.

IPPs are unhappy with the pressure they faced during discussions, which included junior officials from the SECP, the CPPA-G, and Nepra. The key issue is exorbitant capacity issues of power plants both in public and private sector. There is no plan of reform the power sector.

Some owners of IPPs, who also have other business interests, have acquiesced to the pressure and consented to the revised agreements, despite the figures provided that contradicted their documented data.

The sources said almost all power plant owners have been urged to voluntarily announce tariff reductions to set a precedent. Some, like Attock Gen, Liberty Dharki, and Gul Ahmad, have already announced reductions, while others are assessing potential changes after discussions with top officials in Islamabad.

Sources indicate that IPPs are reluctant to trust Muhammad Ali, Special Assistant to the Prime Minister and Co-Chair of the Task Force on power sector reforms, due to his past record. He previously negotiated with IPPs during the Imran Khan administration to revise agreements but failed to honor his commitments regarding payments.

During a talk show on a private television, Power Minister said that “if we look at the power generation landscape, the generation cost is Rs35 per unit, including the capacity payment of Rs18.39 per unit which is more than 50 percent of the generation cost out of which Rs18.39 per unit loans component stands at Rs12-13 per unit.”

Copyright Business Recorder, 2024