In Pakistan, IPPs offer to conduct forensic audit

Independent power producers say if evidence of wrongdoing found, they should be punished


Zafar Bhutta April 17, 2020
PHOTO: REUTERS

ISLAMABAD: Amid the row over capacity payments, the independent power producers (IPPs) have offered the government to carry out a forensic audit by hiring a renowned chartered accountancy firm.

In a meeting held between representatives of the IPPs and government officials on Thursday, sources quoted the IPPs as saying that if the government felt that power producers were involved in malpractices, it should carry out a forensic audit by hiring a renowned chartered accountancy firm. They added that if any evidence of wrongdoing or fraud was found, such IPPs should be punished.

The IPPs also reminded government authorities that back in the late 1990s, unnecessary arm-twisting of some of the IPPs had been done and investor returns were squeezed. And as a result, various foreign investors including International Power, GDF Suez and AES pulled out of the country. Federal Energy Minister Omar Ayub Khan stated that the primary objective of Gencos, which were government’s partners in alleviating power crisis in Pakistan, was to explore options of how to reduce and provide some relief in the cost of electricity being paid by end-consumers including industrial, commercial and domestic consumers.

The objective was also how to resolve the issue of capacity payments that would significantly increase in the future, he added.

The energy minister was accompanied by the special assistant to prime minister on coordination of marketing and development of mineral resources, Finance Division secretary, Power Division secretary and Law and Justice Division secretary. It was proposed to mutually discuss with the IPPs, who were the subject matter experts, in a conducive environment and review the tariff structure to see where the relief could be provided.

The minister said a technical committee would develop the terms of reference for a sequential approach to take this exercise forward. The committee would also share a matrix with the IPPs for seeking information from them for assessment.

Also, recommendations will be sought from the IPPs on proposed areas of tariff reduction. The IPPs stated that they had always acted in the best interest of the country and would continue to do so. They expressed willingness to play their part in the time of need for the country. They voiced confidence over the positive attitude and environment in which discussions had always been held with the power-sector stakeholders.

The IPPs shared serious reservations and disappointment at the manner in which their reputation and image was being tarnished in the media. They requested that the report of the inquiry committee be made available to them so that they could ascertain the veracity of allegations made against them. The federal minister clarified that his committee and the meeting currently being held had no relation to the report of the committee and the timing of its release was just a coincidence.

The IPPs stated that the largest part of capacity payments comprised the debt servicing component, and for those IPPs, which had repaid their project loans, the capacity payments were not so significant that could cause an impact on the overall tariff.

Government officials stated that a number of areas would be evaluated including heat rate, efficiency, dollar indexation, debt restructuring, etc.

IPP officials argued that it was unfortunate that they were not consulted before preparation of the report and it was also not shared with them so that they could review it.

At a time when the country was going through a power crisis and no one was willing to invest, the government had to offer higher returns under the Power Policy 2002 to attract investors. Even then, the investors did not come back, and the government had to offer even more protection and incentives.

The IPPs stated that they had always considered themselves as partners in the energy and power sector and the country’s economy, and were willing to cooperate. Even with very tight liquidity and being on the brink of default, they said they had been making power plants available, even though the government had not paid the IPPs for years. The IPPs stressed that “sanctity of the contracts is very important as these have been signed after detailed scrutiny, public hearing, and any amendment would result in fallout in terms of future investment in the country.” 

Published in The Express Tribune, April 17th, 2020.

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