The committee formed for negotiations with the IPPs has done almost 90 percent of its job. The TORs are for negotiations with pre-1994, 1994, 2002 and wind power (2006) policies. The MOUs are signed and some minor detailing is left. The previous years’ gains to be shared shall be determined by NEPRA.
These negotiations should provide a template – but the real gain in terms of circular debt reduction shall come from lowering ROEs of government owned projects and reprofiling (or restructuring) of debt of these projects. The next step is to take these new agreement template (both debt and equity) to CPEC projects and request at the highest level to repeat the exercise.
However, to reset the numbers, capacity is needed at the energy ministry. Unfortunately, like many other departments, the capacity of the government in energy ministry is weak. Some fear that the government officials may make mistakes in the process and the objective might not be achieved.
It is better for the government to engage with the same committee for government projects and more importantly to deal with debtors. In some instances, foreign lenders are involved, and their consent is required in making changes. Government would need a battery of smart analysts and investment bankers to do so. One cannot expect minster level advisors to achieve the same all by themselves.
Energy economics is a complex subject. And in Pakistan, the issue is plagued with circular debt. The government needs people with relevant experience and exposure to conduct such exercise. The committee that dealt with IPPs has all the expertise and there is no reason why the same experts may not be engaged further.
There were more political brownie points in negotiating with the IPPs – the real juice is in dealing with the government projects. The numbers manifest this need. Total capacity of pre-1994/1994/2002 policies projects is 7,746 MW and almost all the project debt is repaid. Some of these projects on RFO would be rarely run, and should retire. The wind power projects total 1,200MW and would not add much to the gains.
Government own projects’ existing capacity is 18,925MW and 3,400 MW more are coming up in next 12 months. Many of these are fresh and have substantial front-loaded debt liabilities. Hydel extensions and upcoming nuclear capacity payments are the largest. These need to be reset. For example, capacity tariff of new nuclear projects is 6.5 cents /KWH versus 1.03 cents /KWH for 2002 IPPs. Similarly, new hydro capacity charge is 5.33 cents /KWH. The megawatts added by new nuclear and hydel are more than 1994 and 2002 combined. In case of coal, the capacity charge is 3.89 cents /KWH and 3.15 cents/KWH for Thar and imported coal, respectively. Rest is simple math.
Comments
Comments are closed.