Pakistan has warned independent power producers (IPPs) that any company refusing to engage in negotiations would face a forensic audit.
Special Assistant to the Prime Minister on Power Muhammad Ali informed a parliamentary panel on Monday that the government is currently in talks with RLNG-based, gas-based, and other power generation companies owned by the federal and provincial governments.
Discussions are also underway with 45 renewable energy plants, including wind and solar, ensuring no impact on their lenders, he said.
Additionally, efforts are focused on eliminating the power sector’s circular debt, with a plan to borrow funds from banks at a fixed tenor.
Forensic audit
During the panel meeting, Senator Shibli Faraz questioned why no forensic audit had been conducted on IPPs despite billions being paid to them.
"IPPs have extracted massive sums through fuel inefficiencies and deceptive efficiency claims,” he stated.
While acknowledging the issue, SAPM Ali pointed out that Pakistan lacks the expertise to conduct forensic audits for 50-60 power plants. "Conducting a forensic audit requires significant financial resources, and we were not allocated a single rupee for this purpose.”
Ali further revealed that a forensic audit is currently underway for one plant that refused to negotiate with the government. "Moving forward, any IPP that does not engage in dialogue will be subjected to a forensic audit,” he said.
He also said that the government, after negotiating with the IPPs, had terminated contracts with six private power plants, while others have agreed to rupee-based returns and hybrid take-and-pay terms.
Earlier, the government was paying between PKR 70 billion and PKR 80 billion annually for these power plants, with Hubco alone receiving PKR 30 billion per year.
Ali said that the move to scrutinize IPPs comes amid efforts to curb inefficiencies and reduce the financial burden on the power sector.
Senator Faraz then asked about rumors of arm-twisting the IPPs while negotiating the terms and conditions.
Minister for Energy Awais Leghari stated, "We have held discussions with IPPs without discrimination.” Ongoing negotiations with IPPs are expected to save PKR 1.4 trillion, he added.
The Senate committee chairman praised the task force’s efforts in renegotiating contracts with IPPs but urged that the financial relief be passed on to consumers. "People need to know when they will actually benefit from these measures,” he emphasized.
SAPM Ali responded that as negotiations with IPPs conclude, the benefits will gradually be transferred to consumers. He also disclosed that talks have begun with 45 state-owned power plants.
Ali said that the government has fixed the return at 17% for power plants compared to the unprecedented return of 35% in previous decades. Additionally, the government has initiated negotiations on 45 renewable plants to reduce the profit margin on the said plants to sustainable rates.
Senator Mohsin Aziz remarked that relief has not trickled down to consumers despite all the positive outcomes of IPPs negotiations.
At this, Leghari stated that the government has reduced electricity costs by around PKR 4 per unit for domestic consumers and PKR 11.5-12 per unit for industrial sectors. It is hoped that the cost of electricity will further reduce in the coming months as negotiations with other IPPs conclude, he added.
