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Senate body asks govt to stop capacity payments to IPPs

Our Correspondent
Tuesday, Aug 29, 2023

ISLAMABAD: Expressing serious concerns over the recent surge in power bills sent to consumers, the Senate Standing Committee on Monday asked the officials of the Ministry of Energy and other relevant departments to stop making hefty capacity payments to the IPPs and do away with their monopoly.

The panel was informed that a staggering Rs2 trillion has to be paid to the IPPs as capacity payments while in the last fiscal Rs 1.3 trillion was paid. The Senate panel was also told that approximately Rs467 billion worth of electricity was stolen, while around Rs976 billion was allocated for electricity subsidies in 2023.

The committee meeting was convened to discuss the escalating electric bills that have sparked nationwide protests. Expressing deep concern, Chairman Senate Committee Senator Saifullah Abro, asked the officials of the Ministry of Energy and other relevant departments to stop making hefty capacity payments to the IPPs and do away with their monopoly.

Other members of the Senate panel recommended abolishing making payments to IPPs in dollars as they feared that due to the increasing exchange rate the per unit cost of electricity would go up to Rs100. The members of the Senate panel also asked the energy officials to investigate over-invoicing by the IPPs and pledged to expose this corruption. They also asked to prosecute and jail the top officials of the IPPs in order to trace those faceless influentials backing them.

The committee meeting highlighted that the capacity payments were part of binding agreements that obligated the government to pay them even if state-owned companies were unable to transmit electricity. The private power generators, known as IPPs, receive their return on equity (RoE) payments in dollars instead of the local currency, while capacity charges are paid regardless of whether the power plants are operational. An official from the power division informed the Senate Standing Committee on Power that a staggering amount of Rs1300 billion was paid to IPPs in the last fiscal while Rs 2000bn needed to be paid as capacity payments in fiscal 24.

During a recent public hearing by the National Electric Power Regulatory Authority (NEPRA), power distribution companies (DISCOs) revealed that the rise in power tariffs is forcing industrial consumers to close their businesses, causing a significant reduction in power demand. Notably, during the April-June 2023 quarter, TESCO’s power despatch decreased by 41 per cent, HESCO by 19pc, PESCO by 16pc, SEPCO by 15pc, and both GEPCO and IESCO by 14pc each. QESCO’s drawl also decreased by 13pc, MEPCO’s by 12pc, and LESCO and FESCO’s by 10pc each during the same quarter. The diminishing power despatch by distribution companies resulted in plant shutdowns, triggering higher capacity payments to be passed on to consumers. In the current fiscal year (FY24), consumers are set to pay Rs2 trillion to these power plants, even those that remained non-operational. While in the last fiscal (FY 23) Rs1.3 trillion were paid to them.

The Chairman, Senator Saifullah Abro, inquired about the ‘capacity charges’ paid to IPPs. Officials explained that the current year’s capacity payment stands at Rs1.3 trillion. This payment is influenced by factors such as the dollar-rupee conversion rate, imported coal prices, RLNG rates, and the KIBOR rate.

Senator Saifullah Sarwar Khan Nyazee raised questions about electricity theft and electricity subsidies for the current financial year. Officials stated that approximately Rs467 billion worth of electricity was stolen, while around Rs976 billion was allocated for electricity subsidies in the year 2023. The committee directed the Power Division to furnish a list of defaulters and outstanding dues in each distribution company in the forthcoming meeting.

Senator Abro criticized IPPs, labelling them as the primary cause of unjustified electricity costs. He noted that inflated invoices from IPPs had burdened consumers due to their agreements with significant power plants, a point acknowledged by the Secretary of the Power Division. Abro emphasized that resolving the IPP issue is crucial to effectively addressing the electricity crisis.

The Senate committee also discussed a public petition from Ashraf Ansari regarding the non-payment of group life insurance to retired employees of WAPDA. Officials stated that Group Life Insurance was provided in Khyber Pakhtunkhwa under the “Khyber Pakhtunkhwa Civil Servant Retirement Benefit and Death Compensation Act, 2014.” However, no existing Act currently covers Group Life Insurance for WAPDA employees. After extensive discussions, the committee decided to amend the Act to address the concerns of WAPDA employees.

Additionally, regarding the status of implementing recommendations for the 765kV Dasu-Mansehra-Islamabad Transmission Line (Lot-I) and consultant M/s GOPA Intec, Power Division officials informed that a committee has been formed to analyze the bidding process of Lot-I and investigate alleged irregularities by M/s GOPA Intec. A comprehensive report is expected to be submitted to the committee within a month.

The committee also deliberated on the 765kV Dasu-Mansehra-Islamabad Transmission Line (Lot-II). Following thorough discussions, the committee unanimously concluded that M/s Harbin Electric International was disqualified for Lot-II due to significant irregularities. The Power Division was advised to take appropriate action against the company and M/s GOPA Intec, in line with discussions from a previous committee meeting related to Lot-I.