ECC delays approval of IPPs’ arrears

Power Division sought financing to pay first instalment to power plants

Shahbaz Rana April 29, 2021
Power plants under the 2006 policy would get Rs4.2 billion in the first installment, subject to clearance by the ECC. PHOTO: PID


The government on Wednesday put off approval of a Rs89.9 billion supplementary budget to partially clear arrears of Independent Power Producers (IPPs) due to fear of National Accountability Bureau (NAB), which was delaying decision by a cabinet body.

Like his two predecessors, Finance Minister Shaukat Tarin as Chairman of the Economic Coordination Committee (ECC) deferred a summary of the Power Division that sought Rs89.9 billion to pay the first installment to 20 IPPs.

It was the first ECC meeting that Tarin chaired after becoming the finance minister. The ECC did not take final decision on two most critical summaries - the release of Rs89.9 billion installment to the IPPs and whether to continue electricity and gas subsidies for the so-called five export-oriented sectors.

However, the ECC approved a subsidy of Rs4.1 billion to settle the dues of Sui Northern Gas Pipelines Limited for March 2020 on account of provision of cheaper gas to the exporters. The ECC constituted a sub-committee, to be chaired by the federal minister for finance and comprising ministers and secretaries from energy, petroleum and other ministries concerned, for further deliberations on IPP payments, according to a Ministry of Finance statement.

The sub-committee would present a firmed-up proposal to the next ECC meeting for consideration and approval, it added. The ECC did not discuss the IPPs’ summary in detail.

The ECC had earlier thrice put off decision on the IPPs’ summary - first by former finance minister Abdul Hafeez Shaikh in February and April.

Former finance minister Hammad Azhar also deferred a decision this month due to the fact that NAB was investigating the IPPs’ deals after Mohammad Ali inquiry report levelled serious allegations, particularly against power plants set up under the 2002 power policy.

Tarin remarked that everybody was afraid of NAB, but the government had to take decisions. He also observed during the meeting that discussion on this sensitive topic should first take place in a smaller group.

Tarin has also remained under NAB investigation in the rental power plant case and he had earlier linked the taking over of finance minister portfolio with the withdrawal of NAB case against him. The finance minister has filed an appeal in the Islamabad High Court for early hearing of his case. The Power Division had proposed to the ECC that the Federal Board of Revenue (FBR) may review the matter of taxation of contractors at the rate of 4% of the relevant payment and determine whether the allegations of a report of the negotiations committee were based on facts and if any recoveries were due to be made from the relevant IPPs.

However, under the income tax law, the FBR cannot recover the tax liability beyond six years. The Power Division had also proposed that payments to all IPPs under the Power Policy 2002, which signed agreements pursuant to MoUs, may be withheld till the conclusion of NAB investigation.

The Mohammad Ali committee has claimed that successive governments made Rs53 billion in excess payments to the power plants under the 2002 policy. NAB has recently converted an inquiry against a plant owned by Mian Mansha into investigation.

The Power Division had sought a supplementary grant equivalent to Rs89.86 billion for the payment of first installment, which may be approved and released to the division in accordance with the payment mechanism. The government had entered into revised agreements with 47 IPPs and was supposed to pay the first installment a month ago, but it defaulted after the matter was taken up by NAB.

Out of the Rs89.9 billion, Rs23.2 billion will go to Hubco power plant, Rs39.5 billion to Kapco plant, Rs6.7 billion to Rousch power plant, Rs1.8 billion to Fauji power plant, Rs6.5 billion to Pak Gen, Rs6.2 billion to Lalpir power plant, Rs2 billion to KEL and Rs719 million to SABP power, all being set up under the 1994 policy.

The 2006 policy power plants would get Rs4.2 billion in the first installment, subject to clearance by the ECC.

IPPs have requested that the government and state institutions should fulfill their part of the bargain and ensure that the matter is pushed ahead without hurdles or unnecessary delays.

LNG subsidies

The Power Division submitted a summary regarding the release of subsidy for the supply of 100% RLNG to the export-oriented industry in March 2020.

The ECC approved the summary and decided to form a sub-committee consisting of the adviser to PM on commerce, special assistant to PM on power and other relevant stakeholders to review the power subsidies provided to export-oriented sectors, with the direction to submit a holistic proposal to the ECC, according to the finance ministry.

In September 2018, the ECC had approved the provision of subsidised RLNG to five export-oriented sectors at a price of $6.5 per mmbtu and agreed to pick the price differential. Gas sector companies are facing financial constraints due to delay in release of funds against subsidised gas and electricity supply to the exporters.

Except for the commerce ministry, all the other relevant economic ministries are against giving energy subsidies to the export-oriented sectors at input stage, said Special Assistant to PM on Energy Tabish Gauhar.

He said that the energy ministry was of the view that such subsidies should be linked with actual export receipts, which would ensure maximum benefits and stop misuse of the scheme.

Published in The Express Tribune, April 29th, 2021.

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