What are capacity payments for Independent Power Producers (IPPs)? When the government introduced the 1994 Power Policy, the International Monetary Fund (IMF) and the Asian Development Bank (ADB) advised it to establish a capacity payment mechanism for IPPs to attract investors. Under this policy, the government would pay the capital cost of a project through capacity payments. For instance, if a project cost Rs1,000, the government would pay Rs10 as a capacity payment for 100 months, or approximately 8.3 years. After the entire capital cost had been paid to the IPP, the government would become the owner of the plant, and no further capacity payments would be charged. In effect, this payment functioned like a lease arrangement to acquire ownership of the IPP.
Contract Extensions and Unlawful Payments
However, these IPPs somehow did not transfer ownership to the government. Instead, they received extensions to their contracts and continued to receive capacity payments despite having no remaining capital cost to recover. Under the 1994 Power Policy, 17 IPPs were established, including Hubco. A pressing question arises: Can the National Electric Power Regulatory Authority (NEPRA) and the government disclose which IPPs were established, which were transferred to the government, and which continued receiving unlawful capacity payments and obtained contract extensions despite operating machinery that had reached the end of its service life?
Impact on Pakistan's Economy
Had these IPPs been treated in accordance with the provisions of the 1994 Power Policy, Pakistan would not have faced such high capacity payments, circular debt in the power sector, or elevated electricity costs. The reasons behind these contract extensions and who authorised them may be answered by records held at NEPRA.
This situation has contributed significantly to the financial burden on the national exchequer and the common citizen. The lack of transparency and accountability in the power sector continues to be a major concern for policymakers and the public alike.
