FPCCI calls for IPP contract cancellation

KARACHI: The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has called on the federal government to terminate all agreements with Independent Power Producers (IPPs) and procure electricity from cheaper sources to alleviate economic strain.

In a statement, Acting President of the FPCCI Saquib Fayyaz Magoon emphasized that the steep electricity tariffs have resulted in widespread industrial closures and substantial job losses. He pointed out that despite an installed generation capacity exceeding 40,000MW, the peak demand and transmission capacity is only 25,000MW, leading to significant excess and underutilized generation capacity.

Magoon highlighted that the country’s economy is burdened with Rs2 trillion in capacity payments to 40 companies, primarily due to IPPs receiving payments even when no electricity is generated or supplied. He noted that these capacity charges constitute two-thirds of the total electricity cost, while fuel costs make up the remaining one-third.

According to Magoon, studies indicate that IPPs have been enjoying returns exceeding 73 per cent in dollar terms, significantly higher than international standards. He criticized the perpetual contractual arrangements since the 1994 Power Policy, which have contributed to the ballooning circular debt reaching Rs2.64 trillion as of February 2024.

The acting president of the FPCCI added that IPP contracts indexed to the US dollar exacerbate financial burdens on the government and people, particularly with the rupee’s depreciation. Despite initial return on equity rates set at 18 per cent and later reduced to 12 per cent in the 2002 Power Policy, Magoon argued that these rates remain high compared to global norms.

He pointed out disparities in cost comparisons with similar projects abroad, alleging that many IPPs were funded through inflated invoicing on capital goods, resulting in inflated returns. For instance, coal-based plants in Pakistan charge Rs60.48 per kWh, significantly higher than Rs26.01 per kWh for the second-highest thermal generation capacity charge.

Magoon also criticized IPPs for misreporting and overbilling practices, alleging that discrepancies in oil consumption versus billing are commonly obstructed from audit through legal means. He warned that the recent surge in electricity rates could provoke civil unrest among Pakistan’s business community.The FPCCI demanded a comprehensive review of IPP agreements, including price re-evaluation within legal bounds and enhanced oversight to curb overinvoicing.

Magoon stressed the urgent need to scrutinize energy infrastructure for clauses related to misinformation and fraud, urging the government to prioritize affordable electricity prices for national industry interests.Magoon urged the federal government to devise a strategic approach to address IPP issues promptly and ensure transparency in the energy sector.

KATI president calls for cancelling IPP contracts

KARACHI: President of the Korangi Association of Trade and Industry (KATI) Johar Qandhari has demanded the cancellation of contracts with independent power producers (IPPs), citing significant economic harm.

In a statement, Qandhari highlighted that the government’s agreements with IPPs, which guarantee payments in dollars, are severely damaging the economy. “The government is buying electricity from these IPPs in dollars and selling it in rupees,” Qandhari stated, “resulting in their profits soaring due to the rupee’s devaluation.”

He pointed out that in the last financial year, the government paid Rs1,800 billion to these IPPs, with over Rs2,100 billion due this financial year.

Qandhari criticized the contracts, noting that some IPPs have not generated any electricity yet receive billions in payments, which he described as a burden on the public exchequer and oppression of the poor.

He also raised concerns about capacity charges imposed on people for unused electricity, calling such agreements unprecedented worldwide.He urged the government to cancel all existing contracts with IPPs and negotiate new ones, stipulating payments in local currency based solely on the amount of electricity purchased. Qandhari emphasized that the current terms, which lead to electricity rates exceeding Rs55 per unit, have caused an economic crisis, inflated production costs, and hindered the competitiveness of Pakistani products in the global market.