New IPP policy being drafted to invite competition, says PM aide

Dr Ishrat Husain insists no concession is being provided to Chinese setting up power plants

KARACHI: While criticising the independent power producers (IPP) policy of 1994, Adviser to Prime Minister on Institutional Reforms and Austerity Dr Ishrat Husain has revealed that a new IPP policy is in the pipeline.

“A new IPP policy is in the process of being drafted,” he said while speaking at a discussion titled “Socio-economic development under CPEC” at the Adab Festival on Saturday.

Suggesting that Pakistan had no need for providing a guaranteed rate of return, the adviser was of the view that the IPPs should enter Pakistan and compete with each other.

Detailing the new IPP policy, he said whichever IPP offered a lower tariff, it should be permitted. “Bidding will be held and whoever offers the lowest tariff will be deemed the winner.”

The PM aide justified the government’s stance, claiming that there was energy shortage in the past, but since it had been eradicated now, a competitive model should be encouraged.

Stressing that the upcoming policy would be non-discriminatory and highly equitable, he condemned the Pakistani investors who made six to seven times more money compared to what was projected.

Criticising the 1994 IPP policy, he said, “I consider it to be the worst policy in case of Pakistan.”

Energy projects under CPEC were signed under the same policy, Husain told the audience. “No concessions are being provided to the Chinese as far as IPPs are concerned,” the adviser said while dismissing market talk.

“However, wind, coal and solar power projects are being incentivised because these are new technologies and both local and international investors are free to enjoy the benefits.”

Husain pointed out that $35 billion went directly into the IPPs under CPEC.

Under the policy, a 17% return on equity was guaranteed in dollar terms. For solar, wind and coal, the rate of return was much higher at about 24-25% because of their low efficiency.

Husain noted that all contracts were present on the National Electric Power Regulatory Authority’s (Nepra) website for reference.

He regretted that the IPP agreements signed in the 1990s caused more damage than the recent IPPs. “I am against the entire IPP policy which has done a lot of damage to Pakistan,” said the adviser, expressing displeasure that Pakistan paid Rs300 billion in capacity payments annually whether electricity was utilised or not.

He said the interest rate on financing for CPEC infrastructure projects was 2.1% with 25-year repayment period and a five-year grace period.

“This is concessionary financing compared to what we receive from the World Bank and Asian Development Bank (ADB), and $6 billion are being provided for that,” he said.

The adviser also pointed out that agriculture had now been added to CPEC and China, with agricultural productivity 40-50% higher than Pakistan, would assist Pakistan in raising crop productivity.

He announced that China had agreed to provide a grant of $1 billion for socio-economic development of Balochistan including education, health care, water supply and vocational training.

Published in The Express Tribune, February 3^rd, 2019.

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