SC moved to declare power generation policies null and void

ISLAMABAD: After the Lahore High Court Bar Association, the Federation of Pakistan Chambers and Commerce and Industries (FPCCI) has also challenged in the Supreme Court, the Power Generation Policy 1994, issued by the government with the prayer to declare it unconstitutional.

Filed through advocate Feisal Hussain Naqvi under Article 184(3) of the Constitution, the petitioner made Federation of Pakistan through the Secretary Ministry of Energy, Power Division, National Electric Power Regulatory Authority (NEPRA) through its chairman and Independent Power Producers Association as respondents. The petitioner prayed the apex court to declare that the Power Generation Policy 1994 as well as the 2002 and 2015 policies were all null and void because they permitted and continue to permit the disposal of state largesse other than based on competitive bidding and without any rational basis.

He prayed to declare that it is the responsibility of the government under Article 9 of the Constitution to ensure the supply of electricity at the least cost. Likewise, the petitioner prayed to declare that the government of Pakistan and its instrumentalities cannot profit from the provision of essential facilities (such as electricity) to the general public, where such facilities are not available except from the government of Pakistan. He further prayed the apex court to direct the government to implement the 2002 Report in letter and spirit by recovering excess profits earned by IPPs, renegotiating all IPP agreements and changing them from “Take or Pay” to “Take and Pay”, removing anomalies the circulation of IPR from IPP agreements, and withdrawing all such directions as allow the dollarization of amounts not invested or borrowed in foreign currencies.

The petitioner submitted that concerning the supply of electricity, the state of Pakistan has consistently failed on both counts adding that it has not only allowed private parties to make gigantic profits at public expense but it has then joined the party. In both instances, the resultant cost has fallen on the citizenry”, the petitioner submitted. It was submitted that the foundation flaw with the impugned policies is that they all result in the government guaranteeing the repayment of debts incurred by private parties at a higher rate than if the debt had been incurred directly by the government itself.

In the case of projects established under the 1994 Policy, it is possible to make an exact comparison of the additional cost of private sector debt”, the petitioner submitted adding that the 1994 Policy itself states that financing is available at 14% for loans having a term of 23 years (with a grace period of up to eight years). It was further submitted that in December 1994, Pakistan floated a 5-year US$ 150 mn Eurobond at a rate of 11.5%. Had it floated a 10-year bond, the interest rate would have been lower. While it is known that approximately US$ 5 bn was invested under the 1994 Policy, it is difficult to estimate how much more Pakistan paid than if it had borrowed the money directly as a sovereign. According to one estimate, Pakistan paid US$ 21.42 mn more per US$100 mn through the life of a thermal IPP than if it had financed the project itself. If that differential is applied to the entire investment under the 1994 Policy of US$ 5 bn, the additional amount paid by Pakistan is greater than US$ 1 bn. The petitioner submitted that even this figure of US$1 bn undersells the damage suffered by Pakistan as a consequence of the 1994 Policy. Had Pakistan borrowed the money directly, it would have wound up owning the resulting plants itself”, the petitioner contended adding that instead, the resultant assets are now owned by the IPPs. The petitioner does not have access to equivalent interest rate figures for debt obtained by projects established under the 2002 Policy and the 2006 RE Policy. However, both require the GoP to make capacity payments to IPPs which cover their cost of borrowing. Hence, the operative facts remain the same i.e., that: private parties borrow from commercial banks at the rates applicable to private parties. The government guarantees the payments of amounts sufficient to cover all debt repayment, return on equity and O and M expenses. The resultant projects and all their assets are owned by the private parties, it concluded.