Skip to main content

'Strong-arming IPPs will deter future investors’


KAZIM ALAM
Welcome
KARACHI: The Independent Power Producers (IPPs) Association said on Wednesday old plants that are receiving capacity payments without generating electricity can be terminated only under the terms specified in their power purchase agreements (PPAs).

Reacting to power-sector analysts calling for the outright termination of the IPPs that have paid back their debt and equity, IPP Association Chairman Khalid Mansoor said the act of termination is governed under the PPAs. “It would be acceptable to IPPs if the amounts of compensation provided under the contracts are paid,” he told Dawn.

The government has moved into high gear to redraw electricity purchase agreements with private investors mainly to control runaway capacity charges, the biggest component of power tariffs. But the IPP Association, a representative body of 39 electricity generators, has taken exception to the government’s plan to revise the “signed and sealed” contracts.


“A sponsor invests in a power project to earn a return over and above its equity investment over the project life. No investor would invest merely to recover his investment without earning returns over the project’s planned life. Since the term of the PPA is 25 years, the equity is paid off over the same period, not 10 years. If the return on equity (ROE) was to be paid off in 10 years, then the ROE component would be much higher,” he said.

Govt to pump Rs300bn in power sector to avert liquidity shortage

PPAs allow the Central Power Purchasing Agency (CPPA), which is the government-owned sole power purchaser in the energy market, to calculate the revenue requirements of electricity producers partly based on capacity charges. These amounted to Rs664 billion in 2018-19, up 60pc from a year ago.

“Suggesting that equity has been paid off since the ROE component payment is more than the initial equity requirement ignores the way the tariff is structured in the PPA, the time value of money and the rupee-dollar parity,” he added.

He suggested that the government should reduce taxes for consumers to bring down the cost of electricity.

In his article published in Dawn on April 15, former water and power secretary Mohammad Younus Dagha had cited the example of the government-owned Guddu power plant, which was expected to produce six times the volume of electricity generated by 12 old IPPs although the latter were to receive Rs35bn more in capacity charges.

“Guddu is being despatched because domestic gas has been allocated to it. If RLNG was being used, its merit order would be much lower. Capacity payments are as per contractual PPAs based on the life of a project and making the plant available.”

Analysts insist that the government should renegotiate with IPPs the high interest payments, dollar indexation and the ROE that their sponsors enjoy under the existing PPAs.

“Although these are part of the contract/policy, the IPPs did give some concessions on interest rates last year. However, the government didn’t get it approved. So it was an opportunity lost. Similarly, the dollar indexation is as per power policies and PPAs. If the government wishes to change it, it should change the future power policies,” he said.

The IPP Association chairman praised the government for taking up the issue of debt restructuring for CPEC-related power projects directly with the Chinese leadership. The consumer tariff will come down significantly if the banks agree to extend the loan repayment periods from 10 to 20 years. “We support the proposal for renegotiating the tenor and pricing of loans,” he said.

Mr Mansoor added that strong-arming IPPs will shatter the confidence of future investors. “This will increase the country risk premium and future investors will demand higher returns on investments.”

He said the government has accepted his association’s request to pump liquidity into the power sector as the economy slows down amidst the coronavirus outbreak. About Rs300bn will be set aside from the prime minister’s relief package of Rs1.24 trillion for the power sector, he said.

The CPPA will get Rs100-150bn from the allocated amount. A three-member committee will decide the exact amount that each company in the power supply chain will receive, he added.

Published in Dawn, April 16th, 2020
https://www.dawn.com/news/1549600/strong-arming-ipps-will-deter-future-investors

Comments

Popular posts from this blog

SSG Commando Muddassir Iqbal of Pakistan Army

“ Commando Muddassir Iqbal was part of the team who conducted Army Public School operation on 16 December 2014. In this video he reveals that he along with other commandos was ordered to kill the innocent children inside school, when asked why should they kill children after killing all the terrorist he was told that it would be a chance to defame Taliban and get nation on the side. He and all other commandos killed children and later Taliban was blamed. Muddassir Iqbal has deserted the military and now he is  with mujahedeen somewhere in AF PAK border area” For authenticity of  this tape journalists can easy reach to his home town to interview his family members or   ISPR as he reveals his army service number” Asalam o Alaikum: My name is Muddassir Iqbal. My father’s name is Naimat Ali. I belong to Sialkot divison (Punjab province), my village is Shamsher Poor and district, tehsil and post office  Narowal. Unfortunately I was working in Pakistan army. I feel embarrassed to tell yo

CPEC Jobs in Pakistan, salary details

JOBS...نوکریاں چائنہ کمپنی میں Please help the deserving persons... Salary: Salary package in China–Pakistan Economic Corridor (CPEC) in these 300,000 jobs shall be on daily wages. The details of the daily wages are as follows; Welder: Rs. 1,700 daily Heavy Duty Driver: Rs. 1,700 daily Mason: Rs. 1,500 daily Helper: Rs. 850 daily Electrician: Rs. 1,700 daily Surveyor: Rs. 2,500 daily Security Guard: Rs. 1,600 daily Bulldozer operator: Rs. 2,200 daily Concrete mixer machine operator: Rs. 2,000 daily Roller operator: Rs. 2,000 daily Steel fixer: Rs. 2,200 daily Iron Shuttering fixer: Rs. 1,800 daily Account clerk: Rs. 2,200 daily Carpenter: Rs. 1,700 daily Light duty driver: Rs. 1,700 daily Labour: Rs. 900 daily Para Engine mechanic: Rs. 1,700 daily Pipe fitter: Rs. 1,700 daily Storekeeper: Rs. 1,700 daily Office boy: Rs. 1,200 daily Excavator operator: Rs. 2,200 daily Shovel operator: Rs. 2,200 daily Computer operator: Rs. 2,200 daily Security Supervisor: Rs.

A ‘European Silk Road’

publication_icon Philipp Heimberger ,  Mario Holzner and Artem Kochnev wiiw Research Report No. 430, August 2018  43 pages including 10 Tables and 17 Figures FREE DOWNLOAD The German version can be found  here . In this study we argue for a ‘Big Push’ in infrastructure investments in greater Europe. We propose the building of a European Silk Road, which connects the industrial centres in the west with the populous, but less developed regions in the east of the continent and thereby is meant to generate more growth and employment in the short term as well as in the medium and long term. After its completion, the European Silk Road would extend overland around 11,000 kilometres on a northern route from Lisbon to Uralsk on the Russian-Kazakh border and on a southern route from Milan to Volgograd and Baku. Central parts are the route from Lyon to Moscow in the north and from Milan to Constanţa in the south. The southern route would link Central Europe with the Black Sea area and