ISLAMABAD: The government on Monday made first formal contact with the managements of all power plants, particularly Independent Power Producers (IPPs) for a structured dialogue on possible options to reduce immediate liabilities amid constrained electricity demand.

A senior government official told Dawn that a high-level inter-ministerial committee led by Energy Minister Omar Ayub Khan would hold its first meeting on April 15 with the public sector generation companies formerly part of the Water and Power Development Authority and the government-run power plants set up more recently mostly in Punjab for their input and brainstorming.

Formal letters have been issued for separate meetings on April 16 with IPPs set up under 1994 and 2002 Power Policies.

Govt seeks ways to reduce capacity payments

Top officials of the Power Division had been in informal contact with the managements and sponsors of the IPPs following top-level consultations in the government for a constructive engagement on the pattern of amicable settlement with nine IPPs despite international arbitrations.

These IPPs had won international arbitration against the government but had engaged with Energy Minister Omar Ayub and Secretary Irfan Ali for an out-of-court settlement. The two sides had agreed to reduce mark up charges and grace period for payments about nine months ago but the government officials could not secure an approval from the relevant forum so far.

The meeting, led by Mr Ayub will also include Law Minister Farogh Nasim, Special Assistant to Prime Minister on Natural Resources Shahzad Qasim, Finance and Power Secretaries Naveed Kamran Baloch and Irfan Ali respectively and secretary law.

The authorities expect relaxations from the IPPs in some elements of the power purchase tariff including but not limited to capacity charges, rate of return and exchange rate indexation provided the government officials are able to create a conducive environment for dialogue. An official said the IPPs had conveyed their displeasure to recent ‘defamatory’ stance emanating from the government offices.

Because of the increasing liabilities in the energy sector, the Cabinet Committee on Energy (CCOE) led by Planning Minister Asad Umar had decided on April 2 to engage with private investors of power projects to renegotiate terms of their capacity payments, return on equity and exchange rate indexation.

A senior official said the electricity tariff involved an additional burden of about Rs186 billion per annum because of massive depreciation of the rupee against dollar over the last two years while capacity charges amounted to about Rs570bn a year even though large part of this capacity remained unutilised. As a consequence, these major black holes nullified whatever achievements were made through loss reduction and drive against theft and non-recovery.

The sources further said the exchange rate indexations were part of the power purchase agreements when currency fluctuations were minimal and dollar rate ranged between Rs50-70 but over 30 per cent exchange loss in two years to Rs168bn had devastating impact on capacity charges.

In many cases, power producers had recovered returns on many items and they also realised the prevailing challenges of the power purchaser, their profitability levels and the resultant inability of the government to settle their outstanding dues now estimated at about Rs700bn. Thus, they were willing to help out their long-term power purchaser provided it was approached for a constructive dialogue.

The CCoE had announced early this month that it was considering measures to reduce electricity prices, such as rationalising capacity charges of government-owned power plants, exploring the possibility of extending the tenor of loans of various power plants and fuel cost optimisation.

The Independent Power Producers’ Advisory Council – an umbrella advisory committee – on Sunday criticised the government for defaming them and warned to take the matter to international arbitration if the government chose to unilaterally alter their agreements.

Published in Dawn, April 14th, 2020