Govt warns IPPs of forensic audit

The government on Monday warned independent power producers (IPPs), including wind power plants, of a forensic audit if they refuse to renegotiate agreements.

After negotiations with IPPs, the government terminated contracts with six private power plants, while others agreed to rupee-based returns and a hybrid take-and-pay basis, Special Assistant to the Prime Minister on Power Muhammad Ali informed a parliamentary panel.

The Senate Standing Committee on Power, chaired by Senator Mohsin Aziz, met to review ongoing IPP negotiations, forensic audits, and the privatisation strategy for power distribution companies.

Ali stated that the government previously paid between Rs70 billion and Rs80 billion annually to these power plants, with Hubco alone receiving Rs30 billion per year. The scrutiny of IPPs aims to reduce capacity payment burdens and improve sector efficiency.

Senator Shibli Faraz questioned whether power producers had been pressured during negotiations. Ali rejected the claim of forced compliance, stating, "We have not pressured or coerced any IPP into agreements. The faults of power producers were evident during negotiations."

He added that discussions are ongoing with RLNG-based, gas-based, and government-owned power generation companies, as well as 45 renewable energy plants, including wind and solar, ensuring no adverse impact on their lenders. Efforts are also underway to eliminate the power sector's circular debt by borrowing funds from banks at fixed tenors. Faraz questioned why no forensic audit had been conducted despite the billions paid to IPPs. "IPPs have extracted massive sums through fuel inefficiencies and deceptive efficiency claims," he stated.

Ali acknowledged the issue but pointed out that Pakistan lacks the expertise and financial resources needed to audit 50 to 60 power plants. "In 2020, we were not allocated any funds for forensic audits. However, one plant that refused to negotiate is currently undergoing an audit, and any IPP that declines dialogue will face a similar audit," he added. Minister for Power Awais Leghari stated that negotiations with IPPs are expected to save Rs1.4 trillion. "We have conducted discussions with IPPs without discrimination," he emphasised.

Secretary of the Power Division, Dr Fakhre Alam Irfan, informed the committee that the government plans to privatise three power distribution companies: Islamabad Electric Supply Company (IESCO), Gujranwala Electric Power Company (GEPCO), and Faisalabad Electric Supply Company (FESCO). Financial advisors have been appointed for the privatisation process. Hyderabad Electric Supply Company (HESCO), Sukkur Electric Power Company (SEPCO), and Peshawar Electric Supply Company (PESCO) will be offered under long-term concession agreements, he added.

Leghari noted that since June 2024, electricity tariffs for domestic and industrial consumers have been reduced by Rs4 to Rs11 per unit, with further reductions expected as negotiations conclude.

Regarding taxes on electricity bills, the secretary stated that the government is working to reduce them but must first obtain approval from the International Monetary Fund (IMF). "Our discussions with the IMF are scheduled for the first or second week of March," he said.

Additionally, the government has allocated Rs55 billion to transition agricultural tube wells in Balochistan to solar power.

Senate Committee Chairman Mohsin Aziz praised the task force's efforts in renegotiating IPP contracts but urged that financial relief be passed on to consumers. "People need to know when they will actually benefit from these measures," he emphasised.

Adviser Muhammad Ali assured that as negotiations conclude, the benefits will gradually be transferred to consumers. He disclosed that the government has fixed the return for power plants at 17%, down from the previous 35%, and recovered Rs35 billion paid by the federal government for fuel. Talks with 45 renewable energy plants aim to reduce profit margins to sustainable rates.

Ali also mentioned plans to establish an entity named ISMO to create competitive markets and ensure the long-term sustainability of the power sector. Additionally, the government is negotiating to eliminate interest on circular debt and structure payments over the next five to seven years.

Senator Aziz noted that, despite positive outcomes from IPP negotiations, consumers have yet to see substantial relief. Leghari responded that electricity costs have been reduced by approximately Rs4 per unit for domestic consumers and Rs11.5 to Rs12 per unit for industrial sectors, with further reductions expected.

Refuting rumours of new taxes on solar power, Leghari stated that the government has no such plans in the near future.

The committee also discussed the implementation of recommendations from the 2018 Senate Special Committee on Circular Debt, chaired by Senator Syed Shibli Faraz.