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The Senate Standing Committee on Power, chaired by Senator Mohsin Aziz, was informed of significant oversights and negligence in determining tariffs for Independent Power Producers (IPPs) in Pakistan. A lack of technology assessments and efficiency testing were noted as major gaps in the process, impacting the overall power sector costs.
Key Issues Highlighted
During the committee meeting, Muhammad Ali, Special Assistant to the Prime Minister on Power, outlined issues concerning IPPs and upcoming initiatives. He mentioned that no technology studies were carried out when awarding IPP tariffs, and essential efficiency tests like heat rate evaluations were neglected. Additionally, Nepra (National Electric Power Regulatory Authority) approved tariffs without verifying heat rates due to budget constraints.
Contractual and Profit Concerns
Senator Aziz emphasized that details on the IPPs’ rate of return, heat rate, and audit outcomes were not shared with the committee. Noting that contracts with five IPPs had been terminated, he questioned the future of the remaining power producers.
According to Ali, a government study conducted in 2019, with results published in 2020, revealed that IPP profits exceeded 27% after accounting for returns on investment. However, efforts to conduct efficiency and heat rate audits were hampered by IPPs obtaining stay orders from the courts.
Future Plans: Transition to “Take or Pay” Model
Ali announced that all IPPs would gradually transition to a “take or pay” model, aiming for more flexible and cost-effective energy procurement. Negotiations for this shift are anticipated to conclude within the next three months.
