It is generally believed that Independent Power Producers (IPPs) were able to get very favourable terms and conditions from the government of Pakistan due to energy crisis in the country at that time. According to a report in this newspaper, the situation has now changed and the Federal Government is in talks with the IPPs for review of the prevalent agreements aimed at getting some concessions. Irfan Ali, Secretary, Power Division, has revealed before the Senate Standing Committee on Power that in the Power Policy 2015 heat rate test exists but the previous policies lacked this clause and Nepra approved projects on the basis of figures provided by power producers. Besides, dollar indexation was initially limited to those IPPs who invested in foreign exchange but subsequently ECC also allowed dollar indexation to those who invested in local currency (rupees). The review of agreements with the IPPs has to be a two-way street. Power Division had long meetings with the IPPs and they have shown their willingness to discuss specific points. Irfan Ali argued further that such a situation had come to pass after many years that IPPs had shown a willingness to renegotiate agreements. Power Division's entire team was engaged in reviewing the pacts with the IPPs on a voluntary basis. Most of the members of the Senate Standing Committee on Power were, however, not happy with the working of IPPs and thought that their behaviour was exploitative. One of the members said that he was shocked to learn that 17 percent IRR had been given to IPPs in dollar terms but they were earning 35-40 percent profit instead of 17 percent.
We feel that the facts revealed before the Senate Standing Committee on Power are indeed intriguing and call for a thorough probe of the matter to determine the "undue" advantage taken by the IPPs and find ways to reduce the financial burden on the country. There is of course no doubt that energy is an important sector of the economy and plays a crucial role in the country's development. IPPs were invited to invest and make their contribution when Pakistan's economy was confronted with acute energy supply bottlenecks which had constrained the country's growth and development. Over the last five years or so, Pakistan has witnessed a record increase in the country's installed generation capacity through commissioning of energy-related projects to meet energy needs on a sustainable basis. The government had to pamper and favour the IPPs because, with power shortages as a primary economic challenge, the government had to accord top priority to electricity generation. Now that the energy situation has eased, the government finds itself in a much better position to talk to the IPPs on equal terms and the remarks of the Secretary, Power Division clearly show that the IPPs are also prepared to renegotiate the agreements. In our view, some of the glaring anomalies need to be particularly reviewed. For instance, heat rate tests should be conducted by all the IPPs and dollar indexation to those IPPs who had not invested in foreign currencies should not be allowed. The matter of capacity payment made to the IPPs without delivering electricity also needs to be reviewed. The IRR of IPPs also needs to be properly monitored so that they do not make excessive profits. This is necessary because payables of power sector entities, including the IPPs, have to be cleared by the government of Pakistan which could put a further strain on the fiscal position of the country. Now when the ball has been set in motion by the Power Division, we could only hope that something good would come out of the exercise for the benefit of the country and its people.