ISLAMABAD:
As widening power shortfall sparks protests in many cities, the ministries of Finance and Water and Power are locked in a row over an incentive package for the independent power producers (IPPs), which may improve their financial position and encourage them to run plants at maximum capacity.
The water and power ministry has proposed to the government to waive liquidity damages and pay full capacity charges to the IPPs, but the finance ministry refused to entertain the proposal, says a senior government official.
According to the official, the power ministry will present for approval different measures to the Economic Coordination Committee (ECC), which will meet on Tuesday next week, to resolve the dispute with the IPPs, which served notices on the government for holding back dues of billions of rupees and defaulting on payments.
However, the finance ministry has resisted attempts to present the plan before the ECC.
According to the Power Policy of 2002, the government pays capacity charges to the IPPs according to the volume of electricity produced by them.
However, now the power ministry proposed payment of capacity charges for the entire capacity of the IPPs even if they produced less, a government official said, adding these charges would be recovered from the consumers, who were already suffering from load-shedding and paying higher electricity prices due to poor energy mix.
Elaborating, the official said, “If power plants have 250-megawatt capacity and generate only 50MW, the government will have to pay capacity charges for 250MW as per new plan.”
Under the existing mechanism, the government also slaps liquidity damages – a kind of penalty – on the power producers if their plants do not operate at full capacity. In this head, the IPPs have to pay around Rs26 billion per annum to the government.
“IPPs have termed liquidity damages unfair due to constraints caused by circular debt and have demanded that these be waived,” the official said, adding the power producers argued that they had shortage of oil and gas, therefore, liquidity charges should not be imposed.
In the new plan, the power producers, on their part, will not demand late payment surcharge from the government on account of delayed payments.
At present, the Central Power Purchasing Agency (CPPA) buys electricity from the power producers and in case of delay in payment of dues the government pays late payment surcharge.
The new plan will also address working capital needs of the power producers. “The water and power ministry has proposed enhancing working capital limit to 90 days of oil stock,” the official said, adding the power sector would then be able to enhance borrowing from the banks.
At present, the power sector is facing constraints in getting loans due to limits on the working capital. IPPs are bound to maintain oil stocks for 30 days and meet working capital needs accordingly.
Oil prices have gone up, making it necessary to enhance the working capital limit for the power sector to enable it to operate plants efficiently.
The water and power ministry would approach National Electric Power Regulatory Authority (Nepra), which deals with working capital, for enhancing the limit for the power sector, the official added.
Published in The Express Tribune, May 12th, 2012.
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