It is a known fact that Pakistan economy and industrial growth is constrained through high cost of electricity. This is eluding investment in manufacturing both by domestic and foreign investors. Seeing this, in August 2019, a Committee for IPPs report was formed to find out if payments beyond those agreed in policies and agreement have been paid to IPPs.

The government had two options to proceed. Either give it to NAB or set-up a committee which can do a scientific fact-finding and analysis of the situation and recommend the way forward to resolve the issues once and for all. Government rightly opted for the latter. First para of the foreword of the report suggests exactly that. The report suggests that engagement of all stakeholders is a must to move forward in everyone’s interest.

However, IPPs’ strong reaction is misplaced. These are not being scrutinized by NAB or any other accountability forum yet. IPPs’ objection on the report is mainly on three points. First is that they were not consulted. However, this was not required at the time of Committee’s report formation. Now the time is for consultation and government is (and will be) inviting them for negotiations. Their voice is to be heard.

Second point is the bias towards the Chairman of the Committee. If someone highlights the fact that an industry is earning above the agreed profits and then it is proven with backing of numbers, it does not prove any bias. It is pertinent to not that the Committee had membership from all relevant institutions, and it is signed off by nine individuals. Third point is that (they say) their accounting profits are overstated due to debt component being a part of it. This is already adjusted by the Committee along with other required adjustments. It is covered in para 22 and paras 134-138 of the report.

The report respects the power policies of past regimes. Nowhere does it say that policies were wrong or profits agreed in policy should be taken back. A careful reading shows that it only talks about the profits which were not part of the policy. As for analysis of double counting of USD indexation, it is obvious that it is done with the objective of highlighting that in future, Pakistan needs to move from USD to PKR based returns. This is also supported by returns offered in other countries with similar risk profiles. For example, India offers 16% in Indian Rupees.

There is no mentioning in the report that legal agreements should be violated. Out of the three major recommendations, recovery of excess profits is of only those profits which are above the costs of IPPs and above the guaranteed return agreed. Shift from USD to PKR will be part of the negotiations. In case of shift towards ‘Take and Pay’, a clear roadmap is given in the ‘Way Forward’ of Section-1. Even termination of projects is recommended in line with the legal agreement clauses.

The report suggests negotiations as the preferred path. This is the best option for the country and all stakeholders, especially at this critical time due to our economic weaknesses. IPPs will also be better off if they get paid in time, instead of their payments getting stuck in circular debt. Out of the two options suggested, one can’t pick and choose parts from one and some parts from the other. Sitting down and negotiating will require flexibility and willingness to resolve the problem from all parties. The path to forensic audit will be long, painful and will keep the problems alive for a long time to come.