EDITORIAL: Just how good does the government look now that it has missed its first payment of about Rs85 billion to 19 Independent Power Producers (IPPs) even after all its careful planning because the shadow of the National Accountability Bureau (NAB) looms large on the proceedings? IPPs quite rightly see this as an effective default because according to the agreement signed in end-February, the government was supposed to pay the first instalment to 19 pre-Nepra IPPs set up under the 1994 power policy and Hubco by March 29. And this first payment, which is 40 percent of total dues of about Rs403 billion to 47 IPPs, was supposed to be the most important condition of the revised agreement, implying that the new contracts were now operational and the remaining amount would be paid in the next six months.
The Power Division’s concerns are understandable. The government does need a clean chit from the accountability watchdog to make these transactions credible, especially since it criticised the previous Pakistan Muslim League-Nawaz (PML-N) government’s decision to pay Rs480 billion to IPPs right at the outset of its rule to no end. But the manner and timing of this investigation is clearly unacceptable and IPPs are right to protest and even consider sending default notices to the government. For all concerns should have been addressed before signing the agreement and NAB was not just taken into confidence at the right time but its representative also sat in the Economic Coordination Committee (ECC) meeting when approval for these agreements was granted. Why, then, this delay that clearly sends the wrong signals to the power sector and also threatens to send all the goodwill, and good press, generated by the agreement down the drain?
For some reason that only the Power Division seems to understand, it considers it unfair to call the missed payment a government default even though it agrees that it is a “technical default”. The contract allows the government 70 days to make things right otherwise the IPPs will be within their rights to suspend tariff discounts from the date of the default. That would bring everybody back to square one, of course, and send all the wrong signals to local and foreign investors. Clearly, this issue could and should have been handled much better by all organs of the state that were involved in it. Concerns about the first payment hitting a snag were doing the rounds in the press for a number of days. Unfortunately, however, nobody lifted a finger to address them or try to improve the situation. And among other things, the uncertainty created by all this is also being included in the factors that caused a 1,000 or so point correction in the local stock market very recently. How could all the hard work about the revised payments have been carried out as thoroughly as the government claims if it hadn’t cleared the IPPs of the charge of making excess profits to begin with? And why hasn’t anybody explained what is going to happen if NAB is unable to reach a conclusion in the next 70 days or, even worse, if it finds problems that should have been addressed before agreeing to the payments and signing the contracts? To make matter worse for the Power Division there are reports that NAB has informed them that execution of contracts does not fall within the purview of the National Accountability Ordinance (NAO) 1999. That surely puts the Power Division in a fix.
And what of the concerns of the IPPs themselves that failing the first payment they would not be able to maintain their stocks? If only the power ministry had given these issues the attention they deserved at the right time, in addition to, if not instead of, putting in all the effort that it did just to look good on popular media, it wouldn’t have been caught flat-footed like this and the opposition would not have been gifted yet another stick to beat the government with at such a sensitive time. So, as NAB does its work there should also be another inquiry to find out just who put the cart before the horse in this matter and why. Surely, there are very important lessons to learn in all this but first every effort must be made to complete whatever NAB is doing in time to prevent a real default on payments to IPPs.
Copyright Business Recorder, 2021
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