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The IPPs’ curse

The recent “un-official” release of the Report by the Muhammad Ali Khan Committee on Power Sector has given the scandal hungry predators another target to feast upon. This Report fits right into a certain political and some TV channels’ populist narratives for the gullible masses.

As one-sided as it is, it has proved to be a fillip to the TV and social media vigilantes sniffing for villains to vent their personal and political frustrations upon. Don’t blame me. It was the minister before me. Never man up. Talk big, talk loose, vilify people. Then wait for the next crisis and the next batch of prisoners. All crises are legacy crises. This is the name of the game.

The Report itself is nothing but a hatchet job to soften the “enemy,” an enemy who invested billions of USD equivalent and taken the longest view on Pakistan. If one removes Take or Pay vs Take and Pay and Pkr USD Indexation planks from the Report, not much of the alleged loot is left. Some in the media, especially one TV channel and its lead anchor, who is far from what his name implies, continue to celebrate it as the biggest scandal ever out of the corridors of “power.”

Ironically, IPP business is highly technical and model and structure driven, both in terms of contracts and commercial relationships. It is thus highly predictable. The government(s) when it signed PPAs and IAs knew the terms, liabilities and mutual expectations. The Power Policies, the PPAs and IAs, all were approved by the ECCs and CCIs, etc.

The Report authors, all government functionaries with very little if any IPP experience, obviously could not say that the regulators, government negotiators and signatories did not understand English language. Their logic goes like this. If IPPs had been set up the way the Report authors’ dreamt up, the government would have saved these trillions. Since it happened some other way, hence it was a fraud, a three-decade long fraud!

Let it be known to the authors, nightly influencers and their handlers that IPP business is not a sugar barony. IPPs do not come hat in hand for alms at the tax payer’s expense. They deliver services and product, keep their end of the bargain and expect, and, if need be, are empowered under the same contract, to force the counterparty to keep its end of the bargain.

Debate about power sector has, however, been subsumed into a wider sea of trolls and media trials. Deterioration of public discourse fueled by populist, hyper-partisan TV hacks posing as instant historians of Pakistan’s woes is the real problem. This has to stop. The nightly vigilantes are the desi Economic Hitmen. A Cassandra on one channel is always out to create villains out of thin air and half-baked scandals to spice up ratings often at the expense of Pakistan’s ratings. Inconvenient truths are cast aside. They fail to put things in context and appreciate the creation of a regulatory infrastructure and evolution of the PPA as progressively tilting in favor of the power purchaser in terms of tariff and such covenants. Instead the media and the Report, for lack of a smoking gun, tarred all, the ECC, the CCI, Nepra etc., all but themselves.

Conveniently, they failed to note that the majority of the coming capacity payments, are owed to the Governments of Pakistan and China owned projects. Pakistan investors, by and large, had, since long, shunned this poisoned chalice of IPPs.

Lest we forget, till about a few years ago this scribe lived under 12-hours a day load-shedding, that was on a good day. It is zero load-shedding now. The TV anchor(s) may be amnesiac, the economy and this scribe are not. What has happened since is that the economy has tanked.

Following the formal political switchover in mid-2018, the economy was made to suffer a hard landing. Domestic demand decimated, Rupee went into a free fall. Rupee slide and inflation spike caused interest rates to spike too. Rupee costs went up. Such were the precipitating factors which worsened the fiscal crisis and the power “crisis.” This fiscal it has cost the government Rupee 1.9 trillion as debt servicing in the first 9 months! The SBP does not say, sorry we cannot pay! What is the difference between these payments and payment to the IPPs?

It is, thus, a consumption crisis. Power consumption is not in line with the capacity available. Supply is there, demand is down, Rupee cost is up. A macroeconomic crisis has worsened the power sector crisis. On the demand side, higher growth rate and improvement in discos’ performance are two important parts of the solution. Discos’ are in the government’s control. Rather than obsessing about fixing their controlled companies in the power value chain, the government, the authors and TV shills on cue went after the only segment of the power chain the government did not control, the IPPs.

IPPs are cursed. Blessed were those hot money investors who brought in hard currency for a few months, made 13% plus returns, in USD, and then left. No Muhammad Ali Khan there.

No anchor, nobody has picked up on the bureaucracy who controls the Discos and the Discos themselves, where hemorrhaging is. Discos lose about 15 % of their revenues! It is money on the table. The government cannot improve the performance of its controlled entities and found “cash” in the “enemy” the IPPs. Strangely, rather than fixing the discos, the government is now planning to sell public lands to raise money to balance its books. Stop bleeding first. Take my word, it works.

The bureaucracy, NEPRA, CPPA-G and PPIB etc. do not fare better either. They negotiated and signed on to these projects, they know better. But nobody, their fat packages included, has had, so far, the courage to speak up.

We may be the only jurisdiction in the world where profit is tantamount to theft. If you make money, you must be a thief. By that definition, IPPs, their lenders, IFC, ADB, OPIC, Sinosure, all are thieves. The government, the discos are not as they lose money by the shipload.

Shabir Ahmed, "The IPPs’ curse," Business Recorder. 2020-05-14.
Keywords: Social sciences , IPPs curse , Power sector , Hungry predators , TV channels , Gullible masses , Social media , Political frustrations , Legacy crises , Indexation planks , Commercial relationships , Government functionaries , Pakistan , China , IPPs , ECC , CCI

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