Paid to sit idle: Govt may compensate IPPs for running below capacity

Power producers to be paid Rs600m per month under novel plan.

ISLAMABAD:

The government has devised a novel formula to ‘compensate’ independent power producers (IPPs), according to which they will be paid Rs600 million per month for operating below capacity due to financial crunch – a plan which may turn into another scandal like rental power projects.

The new formula was floated with a tag to resolve cash flow problems of IPPs that will eventually help to a great extent in overcoming the energy crisis. The Ministry of Water and Power tabled the proposal in a meeting of the committee constituted to resolve financial problems of IPPs, sources said.

The Economic Coordination Committee (ECC) of the cabinet had formed the committee comprising Water and Power Minister Naveed Qamar, deputy chairman of Planning Commission and secretaries of finance and water and power.

Sources told The Express Tribune that the new formula would favour IPPs at the expense of taxpayers.

However, the water and power ministry took the plea that the capacity of IPPs remained idle due to government’s inability to clear their dues on time. This led to less generation of electricity, forcing the National Transmission and Dispatch Company to slap penalties on IPPs for failing to run on full capacity.

Recently, the government cleared Rs136 billion dues of IPPs through debt swap agreements with banks. But, according to an official of the finance ministry, Rs130 billion of IPPs has again been stuck in the system due to delay in passing on fuel adjustment charges to end consumers.

Both Water and Power Minister Naveed Qamar and Water and Power Secretary Imtiaz Kazi refused to comment when asked about the outcome of the meeting.

Sources said the ministry argued that if the government agreed to make payments for idle capacity, the IPPs would in return extend the payment period to seven months from the present three months. Furthermore, the IPPs will also waive penal charges on late payments.

At the same time, the ministry warned that if the formula was not cleared, the IPPs could invoke sovereign guarantees after delay in payments.

A senior government official questioned the calculations for idle capacity payments, saying they were too premature as the authorities had still to do a lot of work.

The government has already faced a barrage of criticism for paying billions of rupees to rental power plants on account of idle capacity. Keeping this in view, any move to change agreements with IPPs may spark another controversy.

According to sources, the finance ministry has also asked the power ministry to come up with a detailed plan to resolve the problems of IPPs, terming the proposed plan “confusing”.

While the government remained unable to resolve the energy problems despite numerous meetings, life in most parts of the country stood paralyzed due to massive protests against power outages.

People took to streets in Lahore, Gujranwala and Faisalabad as power shortfall peaked at 6,300 megawatts on Tuesday. This led to 13 to 18-hour loadshedding in urban areas and 15 to 20-hour outages in rural parts.

Commenting on the energy woes, the State Bank of Pakistan in its second-quarter report, released on Tuesday, said energy shortages continued to plague production activities, especially in the industrial sector, posing risks to macroeconomic stability of the country.

According to a finance ministry official, Pakistan Electric Power Company (Pepco) has demanded Rs10 billion in monthly subsidy and some of the amount will be released today (Wednesday) and the rest will be paid on March 30.

Published in The Express Tribune, March 21^st, 2012.