IPPs and Cancer of Capacity surcharge: Ahmed S Khalid

by Tauqeer Abbas

In my last several columns, I have repeatedly expressed my deep concern about the government’s contracts with IPPs and payment of capacity surcharge without purchasing power from them. I have even said that these cancerous contracts can sink Pakistan’s power sector and economy, so reform the power sector as soon as possible and review the renewal of these contracts that are leading Pakistan to ruin.

In the recent meeting of the Senate Standing Committee on Electricity, it has been revealed that in the current financial year 2023-24, electricity consumers will pay Rs 1300 billion as capacity surcharge to IPPs without purchasing electricity. Reasons for increase in capacity surcharge include continued depreciation of rupee, import coal, RLNG and increase in interest rates of banks. In the last 20 years, the government has paid 8000 billion rupees as capacity surcharge to IPPs, while only last year 2000 billion rupees were paid, which is more than the army’s budget of 1800 billion rupees.

Today, this cancer of capacity surcharge has grown to more than half of consumer bills. In 2021-22, transmission and distribution losses and theft in the power sector have increased to Rs 550 billion (17 percent), which includes Peshawar Electricity’s losses of Rs 154 billion (37 percent) in just one year, which increases every year. has been destroying the entire system. With smart grid and modern technology we can reduce the transmission losses by 50% in a year but we are collecting these losses by increasing the electricity prices from the common consumers due to which the electricity rates have reached unsustainable levels. are

A commission of inquiry should be set up to inquire into IPPs contracts and payment of capacity surcharge without purchasing power and expose the black sheep who are getting kickbacks and unreal incentives in IPPs, which has also crippled the domestic industry in the region. has made it competitive, which can be estimated from the continuous decline in domestic exports despite the increase in the value of the dollar.

Reasons for increase in electricity prices include payment of capacity surcharge to IPPs without purchasing power, transmission and distribution losses and theft, non-payment of electricity bills, excess of taxes in bills, expensive electricity from imported coal, furnace oil and RLNG. Includes subsidy to production, FATA and tube well consumers and free electricity to WAPDA officials. All these loopholes and shortcomings are being charged to the poor consumers through electricity bills which is totally unfair.

In 2018, the average unit of electricity was Rs 11.72, after which the rate of electricity was increased by 60% during the PTI regime and electricity per unit was around Rs 18. The PDM government has increased electricity prices 4 times in the last one and a half years, which has increased the price of electricity to over Rs 50 per unit, while its actual cost is less than Rs 30.

14 taxes are levied in electricity bills including Electricity Duty, General Sales Tax, Income Tax, Fuel Price Adjustment (FPA), Financial Cost Surcharge (FCS), Meter Rent, Radio, TV Tax, Extra Tax and other taxes. Included. Public reaction to electricity bills is natural. The government cannot give any relief to the public on electricity bills without the approval of the IMF. Due to the slow pace of economic and industrial activities in the country, the demand for electricity has decreased. We should speed up economic and industrial activities in the country and instead of making payments to IPPs without purchasing power, they should be paid by purchasing power.

Under the power policy of 1995, 2002, 2012, 2015 and 2020, the government has signed 15,663 MW power contracts with 42 IPPs, most of which are due to expire this year or next year. Former Advisor Petroleum Nadeem Babar had recommended to the government not to renew the IPPs contracts on the old terms, but instead of profit in dollars and capacity surcharge in the new contracts, only payment for power purchased through competitive bidding from IPPs with the lowest rates. Electricity should be purchased.

Sources say that most of the IPPs have been overinvoicing in plant machinery and have made 400 billion profit on an investment of 60 billion rupees in 10 years and now these plants have become free and the cost of power generation has been greatly reduced. Caretaker Prime Minister Anwarul Haq Kakar has termed the IPPs contracts as unfair, while the Senate Standing Committee has sought details of payments made to IPPs in 10 years. More than a dozen people have committed suicide in the last one week over the increase in electricity prices and people are heading towards civil disobedience due to inflation, poverty and unemployment. The caretaker government should not renew IPPs contracts on old terms.

Apart from this, power plants running on imported coal should be shifted to Tharcoal so that cheap electricity can be generated from local coal. Remember that this time the middle class will decide the election due to inflation and additional bills because they have nothing left to lose.

Shafaqna Pakistan


Note; Shafaqna do not endorse the views of the author 

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