Karachi, June 15, 2020: Ismail Suttar, President of the Apex Body of Manufacturers, The Employers Federation of Pakistan (EFP), has said that the root cause of the burgeoning circular debt is the sovereign guarantees of Rate of Return (ROR) to IPPs (Independent Power Plants) in terms of US$ and not Rupees.
With a weakening Rupee against US Dollar, the cumulative 13 years’ loss amounted to an astounding Rs. 4,802 billion, which calls for full-fledged forensic auditing, and take and pay policy, without any possibility for negotiations
In a Statement, he said that the inquiry report on the power sector has stirred fierce debate on the energy crisis of Pakistan and its identified link to the IPPs. The installed electricity generation capacity in 2020 stands at approximately 35,000 MW, but average energy demand is 19,000 MW because industries are not operating at their optimal potential.
This excess capacity stored in power generators of IPPs is what the government is liable to pay to the IPPs in US Dollars and not Rupees. It is analogous to a showroom charging customers on a per day basis, even if the rented car is standing in the garage.
“The aggressive escalation in energy tariffs is a direct result of the excessive capacity payments to IPPs in US Dollars. This greatly adds to the public debt of the government and leaves it no choice but to pass it onto the consumers through NEPRA in the form of additional tariffs.
Consequently, when consumers are faced with this wrath and are unable to repay distribution companies like K-Electric, they resort to illegal means to consume electricity through pilferage by hooking and defecting meters.”, he added
He further said that the economic loss emanating from these non-payments is roughly equivalent to Rs. 12 billion, while circular debt expands by Rs. 128 billion. Just imagine the devastating socio -economic impact of this vicious cycle.
Ismail Suttar said that during winter time when demand is low, the IPPs are producing less energy but charging exorbitant capacity payments. This is also reflected in the IPP report, which further highlights that power companies are actually earning a hefty return on equity as high as 87 percent.
This shows that governments of the past, when deciding policies for IPPs, did not pay any heed to the sustainable future of Pakistan, and today the industries are suffering miserably because of it. The EFP president stated all responsible must be impeached, without any remorse whatsoever.
There is no room for negotiations. Forensic auditing must be done to save the common man and the dying industries.