AGL 38.18 Decreased By ▼ -0.22 (-0.57%)
AIRLINK 142.98 Increased By ▲ 7.98 (5.91%)
BOP 5.07 Decreased By ▼ -0.02 (-0.39%)
CNERGY 3.77 Decreased By ▼ -0.02 (-0.53%)
DCL 7.56 Decreased By ▼ -0.03 (-0.4%)
DFML 44.48 Increased By ▲ 0.03 (0.07%)
DGKC 76.25 Decreased By ▼ -1.15 (-1.49%)
FCCL 26.95 Increased By ▲ 0.07 (0.26%)
FFBL 52.00 Decreased By ▼ -0.97 (-1.83%)
FFL 8.52 Decreased By ▼ -0.02 (-0.23%)
HUBC 125.51 Increased By ▲ 1.71 (1.38%)
HUMNL 9.99 Increased By ▲ 0.05 (0.5%)
KEL 3.74 Increased By ▲ 0.01 (0.27%)
KOSM 8.15 Increased By ▲ 0.07 (0.87%)
MLCF 34.75 Increased By ▲ 1.05 (3.12%)
NBP 58.71 Increased By ▲ 0.22 (0.38%)
OGDC 154.50 Increased By ▲ 4.55 (3.03%)
PAEL 25.15 Increased By ▲ 0.45 (1.82%)
PIBTL 5.93 Increased By ▲ 0.08 (1.37%)
PPL 118.31 Increased By ▲ 6.66 (5.97%)
PRL 24.38 Increased By ▲ 0.48 (2.01%)
PTC 12.00 Decreased By ▼ -0.10 (-0.83%)
SEARL 56.00 Decreased By ▼ -0.89 (-1.56%)
TELE 7.05 Increased By ▲ 0.05 (0.71%)
TOMCL 34.99 Decreased By ▼ -0.16 (-0.46%)
TPLP 6.98 Decreased By ▼ -0.07 (-0.99%)
TREET 13.98 Decreased By ▼ -0.18 (-1.27%)
TRG 46.10 Decreased By ▼ -0.13 (-0.28%)
UNITY 26.00 Decreased By ▼ -0.08 (-0.31%)
WTL 1.21 No Change ▼ 0.00 (0%)
BR100 8,822 Increased By 86.7 (0.99%)
BR30 26,723 Increased By 466.7 (1.78%)
KSE100 83,532 Increased By 810.2 (0.98%)
KSE30 26,710 Increased By 328 (1.24%)
Print Print 2024-09-27

Govt set to announce revised deals with IPPs

  • Specifics regarding how the Implementation Agreements of five IPPs will be amended remains unclear
Published September 27, 2024

ISLAMABAD: The government is reportedly set to announce revised agreements with Independent Power Producers (IPPs), featuring significant reductions in payments. Authorities have questioned the owners in a discreet location in Rawalpindi, according to well-informed sources.

However, the specifics regarding how the Implementation Agreements of five IPPs will be amended remain unclear.

Many plant owners are unhappy with the pressure they faced during discussions, which included junior officials from the SECP, the CPPA-G, and the Nepra. The key issue is exorbitant capacity issues of power plants both in public and private sector.

Negotiators estimate that this initiative could lead to a maximum reduction of Rs2 per unit in the base tariff.

Sources indicate that owners and CEOs from five groups were explicitly told to either accept the government’s offers or face consequences, a situation that left them alarmed.

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

Good news on revised IPP deals in a few weeks: power minister Awais

The owners of Hubco, Rousch, Atlas, Nishat Group, and Saba Power have met with the Task Force led by Minister for Power Awais Leghari.

However, the discussions appear to be driven by SAPM on Power Muhammad Ali, who was present at the meetings in Rawalpindi.

Some owners reported threats of criminal proceedings if they did not comply.

“There is a prevailing view within the government that plant owners with other business interests may be more amenable to reducing tariffs, whereas, those solely invested in power projects are less likely to comply. Nonetheless, they may also feel pressured to conform,” said an insider.

Negotiators estimate that this initiative could lead to a maximum reduction of Rs2 per unit in the base tariff. Various government teams are strategizing to encourage IPPs to agree to the requested tariff reductions.

Notably, nearly 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 made reductions, while others are assessing potential changes after discussions with top officials in Islamabad.

Capacity charges: 33 IPPs were paid Rs979.3bn in FY24

“Our position is clear: we are not in breach of the Implementation Agreement, nor has the government claimed we are. Allegations from unnamed government sources are distractions and bad-faith attempts to coerce us into agreeing to unreasonable terms that violate our agreements,” stated a representative from IPPs in Lahore.

The situation regarding 12 IPPs currently embroiled in litigation at the International Court of Arbitration is also a priority. Government analysts have identified overpayments of Rs50 billion to these IPPs, who, according to Power Minister Leghari, received preferential treatment from the previous administration.

The plan includes shutting down IPPs or Gencos operating at only 20 per cent efficiency, with payments based on net return on equity. Negotiators have been advised to prepare IPPs for a claw back mechanism, as a reduction in return on equity (RoE) may not be beneficial.

The IPPs are claiming higher spreads, which are not justified, and are also disputing fuel components without heat rate audits, in addition to late payment charges. They assert that their equity funding yields higher returns and that they incur higher O&M and insurance costs in dollars.

In a policy statement before the Senate Standing Committee on Power, Minister Leghari announced that the public can expect positive news regarding mutually agreed revised deals with IPPs in the coming weeks, as the task force approaches a conclusion. He clarified that while a reduction of Rs20 per unit is not feasible; the government is exploring ways to achieve reductions of 50 paisa, Re1, or 80 paisa per unit.

“The federal government is actively exploring strategies to lower ‘unbearable’ electricity tariffs by re-bidding tariffs for approximately three dozen operational wind power plants. This effort is part of a broader push to pressure owners of other private power projects to lower their rates,” another insider revealed.

However, some IPP owners have decided to contest the government’s actions on multiple fronts, including international arbitration.

The re-bidding of tariffs for all wind projects, particularly those with higher rates, is under serious consideration. NEPRA’s Tariff Regulations allow for a re-bid of wind power project tariffs every five years, prompting the government to consider re-bidding existing operational power plants totaling approximately 1,850 MW to achieve tariff reductions.

Nevertheless, insiders at Nepra assert that no such re-bidding exercise is currently in progress. Currently, around 12 wind power projects have tariffs of 16 cents per unit, while a similar number benefit from tariffs of 10.5 cents per unit.

A committee headed by Finance Minister Muhammad Aurangzeb is working on reduction in RoEs of public sector power plants which constitute about 60 per cent of total generation.

Copyright Business Recorder, 2024

Comments

200 characters
T Sep 27, 2024 08:43am
in international arbitration government will lose as usual...question arises were they asleep while signing the contract?
thumb_up Recommended (0) reply Reply
KU Sep 27, 2024 09:41am
Only constant in revised deal will be more financial pain with hope in the distant future. This of course will not cut it for industry n agriculture nor respite for unemployed n people in misery.
thumb_up Recommended (0) reply Reply
Aamir Sep 27, 2024 10:57am
ministers who signed on the contracts be made answerable. Anyway no one will now invest in any future projects in Pakistan. No contract is honored here. Business environment is unstable high risk.
thumb_up Recommended (0) reply Reply
sadiq Sep 27, 2024 11:05am
@T, why international arbitration when you are on the verge of default?
thumb_up Recommended (0) reply Reply
sadiq Sep 27, 2024 11:08am
The business community, traders, industrialists and last but not least common man have been urging to reduce electric rates. So let's see what's the good news.
thumb_up Recommended (0) reply Reply
sadiq Sep 27, 2024 02:20pm
@Aamir , no country offers unimaginable profits as Pakistan offers. IPPs have GUTTERED the economy of Pakistan
thumb_up Recommended (0) reply Reply
Qasim Sep 27, 2024 03:24pm
How much is this really going to make a difference. The problem is that we are paying about 50% taxes in our electric bill. This is all a big hoax by the government to draw attention away from them.
thumb_up Recommended (0) reply Reply
T Sep 27, 2024 04:59pm
@sadiq, international arbitration doesnt mestop if you are in default, the money can still be recovered by selling government assets if they dont/cant pay.
thumb_up Recommended (0) reply Reply
Faheem Sep 27, 2024 06:17pm
i get an impression that government is actually not able to dictate the IPPs and therefore using mere tactics to discount 50pais to 2rs/unit, otherwise government would have forced 10rs/unit atleast
thumb_up Recommended (0) reply Reply
AAN Sep 28, 2024 06:25am
Have we read and analyzed the consequences in case if any company go into litigation after some time call it the contract was signed forcibly. Please read again and again the current contracts.
thumb_up Recommended (0) reply Reply