IPPs under fire: Nepra hearing sees calls for forensic audit

ISLAMABAD: Lawyers and industrialists demanded a forensic audit of Independent Power Producers (IPPs) amid allegations that NEPRA has unfairly passed on a massive multi-billion-rupee burden to consumers over the past three years, despite IPPs violating the Economic Merit Order.

They argued that the IPPs, perceived as untouchables, have placed a significant financial strain on Pakistan’s 240 million citizens. They voiced their concerns during a NEPRA public hearing, convened following directives from its Tribunal and the Islamabad High Court. They requested a detailed forensic audit of IPPs and also demanded the release of data on power generation.

The appellants criticised 20 NEPRA’s rulings since March 2021, and were described as “impugned” by both the tribunal and the high court. They have directed NEPRA to reassess its previous rulings on 15 fuel price adjustments (FPA) and five quarterly tariff adjustments (QTA). The EMO is a key principle used in Pakistan’s power sector to manage electricity generation and ensure cost efficiency. It prioritises power plants based on their generation costs, dispatching cheaper plants first and only using more expensive ones when necessary.

Criticising the disparity in electricity costs, a businessman noted that while tariffs in India and Bangladesh are Rs12 and Rs14 per unit respectively, in Pakistan they range from Rs55 to Rs60 per unit. He questioned why 40 families owning IPPs have remained unaffected while the broader population suffers. “Industry has come to a grinding halt,” he said, highlighting that around 85pc of industries from Faisalabad to Lahore have shut down due to high energy costs. He called for a forensic audit of the IPPs and mentioned that a Supreme Court petition had already been filed on this matter.

An appellant argued that failure to adhere to merit orders has resulted in higher electricity costs for consumers and pointed to inefficiencies in IPPs. He claimed that addressing these inefficiencies could have saved the public approximately Rs3.3 billion. The tribunal’s ruling had recommended a third-party audit of the Central Power Purchasing Agency (CPPA) and the National Transmission and Dispatch Company (NTDC), citing issues related to non-compliance with the merit order and power plant inefficiencies, he said.

During the hearings, NEPRA Chairman Wasim Mukhtar also expressed frustration with the process and criticised the affected parties for their conduct. He emphasized the need for professional behaviour and noted that NEPRA had struggled due to delays in advertisement releases and insufficient information from parties. The tribunal’s decision highlights the need for improved regulatory monitoring, and transparency practices within NEPRA. This is expected to influence electricity pricing and regulatory procedures going forward.

Advocate Arslan Riaz, representing Nishat Mills, argued that violations of the EMO have shifted a burden of Rs15 to 20 billion onto consumers. Riaz noted that NEPRA has repeatedly identified these violations, resulting in consumers paying higher electricity costs. He called for a third-party audit of the NTDC and the National Power Control Center (NPCC), and criticised NEPRA for failing to conduct meaningful hearings. “We want the data to be provided to us so we can assess it,” he said.

Advocate Faisal Zafar, representing Flying Paper Mills, argued that IPPs had over-invoiced fuel usage. He urged the federal government to conduct a forensic audit of IPPs to address issues of over-invoicing, heat rate discrepancies, misstatements and misreporting. Zafar also criticized the lack of meaningful hearings and document scrutiny. He complained that despite numerous requests for documents following the tribunal’s decision, NEPRA had not responded.

A CPPA official responded by stating that both external and internal audits are conducted on CPPA, including audits by the Auditor General. He expressed frustration, saying, “This is not the appropriate forum to toss this issue around.” He emphasized that such matters are typically addressed by the Public Accounts Committee (PAC) of Parliament.

Advocate Hasan Ali Raza argued that the NPCC has consistently failed to follow the merit order. He noted that NEPRA’s decisions frequently mention this issue, even including additional notes, but these recommendations have not been implemented, resulting in costs being passed on to consumers. A NEPRA member stated that, provisionally, NEPRA is not allowing these costs and is deducting them without passing them on to consumers.

Advocate Qaiser Amir, representing Frontier Foundry Steel, called for certified and audited data from the IPPs to assist the authority. He also criticised the delays in decision-making, suggesting that the process should take 7 to 14 days, rather than the current 40 to 45 days, which negatively impacts businesses.

Another NEPRA member replied that the authority does review the data, including heat rates, and thoroughly verifies the fuel cost component. However, another member of the authority added, “It is a long process; it cannot be completed in 7 days. It is not possible.” Barrister Hassan Qadir Khan, representing Bestway Cement, and Advocate Haq Nawaz Chatta from the Popular Group, demanded complete documentation regarding the IPPs’ generation and fuel costs. He said they would assist the authorities once they receive the full documentation.