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Time of Reckoning for IPPs

Sidra Insar Chaudhary

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Sidra Insar Chaudhary

 

An open government renders a healthy and transparent democracy. There are various laws in place at federal and provincial level that ensure public’s right to information. However, these laws – like all other – need to be implemented with their true spirit for them to achieve the required effectiveness. In Pakistan, due to the connivance of the ruling elite, transparency has gradually been eroded to such an extent that nobody expects any inquiries or findings in to the matters concerning the public at large. However, the current government of Imran Khan is exhibiting its determination to change and uphold transparency by making the governmental reports public.

 

At the start of this month, Prime Minister Imran Khan made the inquiry report of sugar and wheat price rise scandal public, even though the report implicated many high-ranking members of PM’s own party such as former secretary general Jahangir Tareen and federal minister Khusro Bakhtiar. PM not only released the report but also took action to bring the responsible people before justice by forming an inquiry commission under the Commission of Inquiry Act 2017. The commission is expected to present its findings to the PM in 40 days. In addition, PM Imran Khan also fired from their official positions several members that were held responsible for the crisis in the report.

 

Now continuing this tradition of asking questions from the powerful, the IPP enquiry report has been submitted to the PM this week, and swiftly the cabinet gave its approval to make the report public. The government has also decided to form a commission of inquiry base on this report. The IPP commission will submit its findings in ninety days. The IPP report has unnerved the well-connected influential people who have taken advantage of billions of rupees of public money almost on a daily basis.

 

Pakistan’s circular debt stands at Rs 2 trillion and it is growing at Rs 1000 million every day. Such extraordinary figures in debt are not possible without some people pocketing billions from the consumers and taxpayer’s money. The report presents undeniable facts and figures without attacking any stakeholder. The report recommends the recovery of Rs 104 billion from the IPPs and also proposes comprehensive way forward for the energy sector.

 

In a letter to the federal minister of energy, the IPPs have come out attacking the report by questioning the intentions of the head of the inquiry committee. The people behind IPPs are the same who have been asking government to renegotiate energy contract with Qatar and renegotiate IMF deal because of harsh conditions. However, now when government is asking for renegotiation on power purchasing agreement, they are questioning integrity of the government and sighting legal hurdles for the government to take any action.

 

One has to wonder why there has been no major investment in Pakistan other than the IPPs and why the electricity cost is so high. Why our industry is increasingly becoming uncompetitive and why our exports has not increased as they should have.

 

Several experts have pointed out that the profits IPPs have made in Pakistan are unheard of in any other country. Since 1994, when the IPP policy was first introduced, IPPs have made seven times the divided and nine times the profit on their investment with average return on equity (ROE) of 87 percent. One coal plant that was established under 2015 power policy has recuperated 75% of the investment in first two years while another plant has recovered 33 percent in only its first year of operation. The reason for all this is the gross misreporting by these IPPs in the course of tariff ascertainment process. Furthermore, IPPs have also made extra Rs 64 billion by misreporting fuel. The report has also mentioned other methods to acquire extra payments.

 

Through decades of plundering Pakistan is drowning in debts. The soaring fiscal deficit is almost out of control. One of the major causes of fiscal deficit is the financing of the circular debt by using resources from the budget. The cost and recovery deficit in part is paid by the government and the rest is placed under circular debt. From financial year 2007 to 2019 government paid Rs 3.2 trillion and still today we have Rs 2 trillion in circular debt.

 

The IPP report paints a very grim picture of the power sector and recommends forensic audit of the IPPs to look for kickbacks, over-invoicing, heat rate audit and on misreporting data to the government. Other option is to renegotiate the contracts with the government.

 

The remedy starts with the recognition of the key issues of the problem which then yields more informed decision-making and culminate in action to solve the problem. The IPP report is just the start of the remedial process. These developments must also be supported by developing institutional and economic incentives that are consistent with sustainability. Indeed, the time has come to expose and take a decisive action against powerful cartels in Pakistan, and recover the exuberant amount of money that has been stolen from this country over the last three decades.

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