Capacity charges of IPPs unfair: ICCI chief

ISLAMABAD      -  President of the Islamabad Chamber of Commerce and Industry (ICCI) Ahsan Zafar Bakhtawari has urged the government to devise a viable solution to boost industry and businesses through providing affordable electricity and imposing nominal taxes.

In a statement here on Tuesday, he highlighted that exorbitant taxes, high power costs, and a poor law and order situation severely impact the economy and could further accelerate unemployment. There was no justification for maintaining exorbitant interest rates at 20.5% when inflation has already dropped to 12%, he pointed out. Ahsan Zafar Bakhtawari stated that providing electricity to the industry at a rate of 9 cents/kWh would increase exports by $6 billion, add over 300 megawatts to the grid, generate Rs. 500 billion in revenue, and reduce debt servicing by Rs. 240 billion.

Emphasizing that the business community can’t secure international orders when the government imposes high charges under crosssubsidies, he questioned why international buyers prefer Pakistan over countries like Vietnam and Bangladesh, which offer cheaper energy rates. He warned that the export industry was declining, and Pakistan was losing market share rapidly because electricity was more than twice as expensive as in competing countries. The ICCI president expressed concerns that with the current energy prices, 60- 70% of the industry might shut down, especially with the significant increase in domestic gas rates for the industry. Uncompetitive energy tariffs are hindering export growth and investment in the export sector. He mentioned that all 228 chambers and trade associations across the country were alarmed after the federal budget announcement.

He criticized the Rs2 trillion in pending capacity payments to Independent Power Producers (IPPs), which he said have paralyzed the country’s economic activities. He described the capacity charges of IPPs as unfair, noting that they are paid even when no electricity is generated. Bakhtawari said that these charges make up two-thirds of the total cost, with fuel costs comprising the remaining one-third. Investigations revealed that IPPs have been enjoying a return on investment exceeding 73% in dollar terms, an unusually high rate compared to international standards. Originally intended to alleviate the energy crisis by attracting private investment, these contracts have instead led to an escalating circular debt, reaching Rs2.64 trillion in February 2024.

He said that the traders were willing to pay taxes but were discouraged by the complexity of policies. Restrictions on cash transactions for manufacturers and mandatory POS (Point Of Sale) registration for retailers with official purchases over Rs4 million, along with the inclusion of manufacturing units in the withholding tax regime, will hinder business growth. The ICCI president expressed confidence that the country has the capability to overcome these challenges, provided there was adherence to comprehensive, long-term, and well-tailored economic policies. He demanded that the government immediately start consultations with business leaders to devise a workable economic policy.

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