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Govt. Expects Savings of Rs 325 Billion by Scrapping Pacts with Five IPPs Prematurely

by AMG
September 29, 2024
in Energy
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Enhanced Rationalization in the Categorization of SOEs
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ISLAMABAD: The government has reportedly decided to prematurely terminate agreements with five Independent Power Producers (IPPs), claiming this will save the country Rs 325 billion. The affected IPPs include M/s Hubco Power Company, Rousch Power, Atlas Power, Saba Power, and Lalpir Power Limited, which are owned by notable figures such as former Commerce Minister Habib Ullah Khan, Abdul Razak Dawood, Saqib H. Sherizi, and Mian Mansha.

An auditing team from the government discovered discrepancies in the balance sheets of these power plants. These findings were discussed in meetings with owners, senior executives, and a mix of civil and military officials. While the power plant executives disputed the identified financial discrepancies, both sides have struggled to reconcile their figures.

Key issues such as Return on Equity (RoE), higher operational and maintenance costs, insurance, and fuel investments have led the government to pressure the plant owners for concessions. The Senate Standing Committee on Power has pointed out that some plants received billions in capacity payments without delivering electricity.

The IPPs involved have requested that the government reach a mutually beneficial agreement and compensate them fairly. However, auditors argue that no payments are owed, which could lead to further conflict. Insiders indicate that the government will consult the Law Ministry, as there is a strong possibility that some IPPs may challenge the decision.

“The definition of the breach of contract clause could provide grounds for contestation by those IPPs facing premature contract termination,” noted one insider.

Various options regarding the power plants established under the Generation Policy of 2002 are currently under consideration. Initially, a proposal suggested shifting 12 IPPs to a take-or-pay mechanism to reduce substantial capacity payments. However, another perspective emphasizes that these plants require essential funds to cover salaries and operational costs, necessitating their availability on an as-needed basis.

Sources indicate that the Task Force will present its findings to Prime Minister Shehbaz Sharif next week before finalizing the termination of contracts.

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