EDITORIAL: According to a Business Recorder exclusive, the World Bank in its report meant only for official use noted serious issues prevalent in the power sector during the past decade that remain unresolved: (i) high cost of power - 25 percent higher than the regional average due to expensive power purchase agreements signed with the Independent Power Producers (IPPs) and penalty payments to IPPs in the event that the government does not pay on time as per the signed agreement; (ii) debt servicing cost of Pakistan Holding Power Limited (PHPL); (iii) losses accumulated from unfunded public policy mandate and a lack of timely revision of tariffs; and (iv) poor performance of distribution companies, inclusive of high technical and commercial losses.
There are multifarious issues prevalent in each energy sub-sector ranging from the agreements with IPPs, with many dating to the PPP's tenure under Benazir Bhutto retiring soon, while renegotiating with those generation companies granted special incentives under the China Pakistan Economic Corridor (CPEC) maybe more of a challenge, to the expensive fuel-guzzling inefficient generation companies (Gencos) to the need to enhance transmission and distribution network to improving governance in the Power Division to the need to restructure the power sector in favour of less expensive fuels as input to not passing on the sector inefficiencies to the consumers through the levy of surcharges. However, their resolution continues to beset Pakistan's power sector which explains why they have been components/conditions of sector specific as well as programme loans for decades.
More recently, International Monetary Fund's (IMF's) ongoing Extended Fund Facility (EFF) programme has also identified structural benchmarks and quantitative time bound actions to resolve power sector issues. Be that as it may, Pakistani governments, including the incumbent, have been unable to improve power sector performance or deal with any of the prevalent structural issues for political reasons and, as the World Bank stated in another report, due to the governance system partially subject to influence by the elites. The exception is with respect to implementing revenue-based load-shedding, that mostly impacts on poor areas, that began during the PML-N tenure and continues to this day, prompt notification of increase in tariffs (particularly when on an IMF programme), making 136.7 billion rupees of PHPL loans part of national debt in the federal budget 2020-21 as per an agreement with the multilaterals and seeking permission to allow the government to impose surcharge on consumers.
However, what must be appreciated is the fact that the Khan administration, in acknowledgement of the expensive power purchase agreements signed with the IPPs, began a process to renegotiate with the IPPs - a process that began last year. It was stalled at the time as other IPPs urged the government to first resolve the issue with Rousch (Commerce Minister Razzak Dawood's family has a major stake in the company), justifiably contending that the penalties imposed were not appropriate as the company was awaiting payment from the government before it could clear its own dues. Last year, the government set up a committee to resolve the issue with Hammad Azhar in the chair; however, more than six months after it was established it has yet to hold a meeting. One would therefore urge Azhar to resolve the matter as soon as possible as a lot maybe riding on it.
Be that as it may, the Ministry of Energy on 3 June 2020 notified the constitution of a five-member sub-committee under the chairmanship of Federal Land Composition of Pakistan Chairman Babar Yaqoob Fateh Muhammad to negotiate 'the change of rate and formula of their profits, return on investment and Internal Rate of Return from USD basis to PKR basis without any USD indexation,' and on changing the modality from take or pay to take and pay. The committee was also directed to coordinate with Power Division entities (Nepra, CPPA, NTDC and AEDB).
To conclude, it is critical for the government to resolve matters pertaining to IPPs and if successful this would be a landmark achievement to the credit of the Khan administration.
Copyright Business Recorder, 2020
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