ISLAMABAD                  -               A government constituted committee, formed to probe the alleged minting of billions of rupees by Independent Power Plants (IPP), has claimed that the power sector is incurring a loss of Rs1bn per day,

The committee pointed out that Pakistanis were being provided electricity at the most expensive rate in the region. It said that private companies provided false oil statistics to secure better tarrifs. The report suggested that the power tariff could be cut down by Rs 3 per unit by adopting three measures; shifting the payment to IPPs from dollars to Rupee, switching from take or pay to take and pay option, and by reducing the capacity payments.

In its report submitted to the government, the committee claimed that various sources identified malpractices by private sector generation companies (IPPs) especially with respect to project set-up costs, actual fuel usage being less than invoices submitted to NEPRA, kickbacks in commission on fuel, etc.

The PTI government had constituted a committee with ex-SECP Mohammad Ali as its chairman and it was mandated to conduct a holistic analysis of the causes behind the issue faced by the sector. The committee had submitted its report to the Prime Minister of Pakistan last week. In its report the committee pointed towards several anomalies in the PPAs with IPPs which has caused 100s of billions of rupees loss to the power consumers.

The report said that despite its best efforts, the committee was not provided with the break-up of bulk upfront tariff including Return on Equity used under the 1994 policy.

The committee observed that under the 1994 Power Policy, 16 out of 17 IPPs invested a combined capital of Rs 51.80 billion and have so far earned profit in excess of Rs 415 billion having taken out dividends in excess of Rs 310 billion. Most of these IPPs had an investment payback period of 2 to 4 years profits generated were as high as 18.26 times the investment and dividends taken out as high as 22 times the investment. Six companies earned average annual RoE between 60 to 79 percent and four companies earned RoE of around 40 percent.

Similarly, 13 RFO and gas-based plants with a combined capacity of 2934 MW were established under the Power Policy 2002. During the last 8 to 9 years of operations, these companies have so far earned profits of Rs 203 billion against their combined investment of Rs 57.81 billion. Even after adjustment of debt component to arrive at the true profitability, the companies still earned Rs 152 billion in profit and made dividend payments to the tune of Rs 111 billion.

Moreover, a review of the profitability of two imported coal-based plants established under the power policy of 2015 shows that one of them has already recovered 71 percent of investment in only two years of operations and the other plants has already recovered 32 percent of its investment in the first year.

A significant percentage of these profits have been earned account of misreporting by the generation companies while seeking tariff and misreporting and seeking a tariff adjustment at the time of commercial operations date (COD) from NEPRA and misreporting.

In the case of the IPPs established under the Power Policy 2002, it was found that a major component of excess payments to the IPPs were on account of the actual fuel consumed to generate electricity being less than the payment made by the purchaser in lieu of the use of such electricity. Similarly, the actual O&M expenses incurred by the producer were less than the payment received under this head. Total excess payments made under these and other heads work out to Rs 64.22 billion during the last nine years (2010-19) with expected future excess payments of Rs 145.23 billion during the remaining years of operations bringing the total excess payments of Rs 209.46 billion to these plants.

Excess set up costs of Rs 32.46 billion was allowed to the two coal-based plants due to misrepresentations by sponsors regarding IDC as well as non-consideration of earlier completion of plants by NEPRA. The plants are expected to make get an excess payment over the project life works out a total of Rs 291.04 billion.

Similarly, four out of six bagasse-based power plants, established in 2013, received an excess payment of Rs 6.33 billion. On the issue of excess profitability on account of systemic tariff issues the reported pointed out that due to mismatch in frequency of payment of return (during nine years) the excess payment to the 2002, 2006, 2013 and 2015 IPPs under review (6471MW) amounts to Rs 237.65 billion, whereas the excess payments to all IPPs except for IPPs installed under 1994 and 1995 policies (13156MW) aggregates to Rs 565.88 billion. The excess payments on account of systematic errors were Rs 104 billion.