ISLAMABAD: Apart from non-payments of over Rs300 billion dues by the government, the Independent Power Producers (IPPs) are now faced with a new challenge – a serious probe by the power regulator into their excessive profitability touching 40 per cent.

Informed sources told Dawn that the National Electric Power Regulatory Authority (Nepra) has written letters to the IPPs to provide their audited financial results for a couple of years to see if there were some grey areas that provide unusually higher returns to the IPPs and their shareholders.

Under the power policies of 1990s and 2000s, most of the IPPs are entitled to about 15pc internal rate of return. However, Nepra and some government quarters have become curious how the IPPs could enjoy “enormous profits of up to 40pc” as shown in balance sheets and financial results of some the IPPs.

Top Nepra officials declined to speak on the issue on record when contacted by Dawn. Nepra officials, however, privately confirmed that letters had been dispatched to all IPPs, except a few with normal profitability rates.

Informed Nepra sources agreed that although Securities and Exchange Commission of Pakistan (SECP) being the corporate watchdog was primarily entitled to look into financial affairs of registered companies but being power sector regulator, Nepra too had the powers to examine financial results of entities regulated by it.

The power producers are entitled to about 15pc internal rate of return under the power policy

“There might be some aspects in the financial affairs of the IPPs which might not have been noticed during the course of public hearings, grant of licences or approval of tariff and could come to light through back counting or auditing by the regulator,” said a senior official, adding that it is a routine matter and could not be described as ‘adverse investigation’.

He said the higher profitability was understandable during the years of clearance of financial backlog as was the case last year when over Rs480 billion circular debt was settled by the PML-N government but profitability of some of the IPPs have remained between 30-42pc for many consecutive years and need to be examined. He said a special audit may be ordered if Nepra’s in-house experts suspect something special.

Sources in the IPPs agreed that Nepra had the powers to seek any information or record from IPPs and power companies but timing of the probe had created unrest among the IPPs shareholders.

He said the IPPs have been pressing the government for payment of over Rs250bn payable by the public sector power purchasers because they were finding it difficult to run their plants due to financial constraints and issuing notices to the government, such investigations raised suspicious of arm-twisting.

He recalled that the IPPs had faced serious investigations for overcharging public sector companies when the PML-N was in power in the 1990s and as a result the tariffs were revised downwards through negotiations.

“No wrongdoing was found 15 years ago and nothing would come out now. Let them complete the process,” said a confident chief executive officer of an IPP.

Over the past two months, the IPPs had been complaining that they were facing financial problems because of their inability to service their loans as receivables from the public sector piled up.

Last month, a group of 22 IPPs had written to Finance Minister Ishaq Dar to intervene and save them from total collapse as some of them had been consuming shareholders’ money to remain current on bank loans.

They said payment schedule given in power purchase agreements had significantly been violated by the power companies owned by the government and even capacity payments were being withheld.

They said the IPPs were going out of their way to help the government with maximum power supply despite serious cash flow crisis but the other side was extremely lethargic in meeting contractual obligations. Legally speaking, all IPPs were within their contractual right to call government guarantees but they were showing restraint despite continuous defaults.

A representative of the IPPs said the tariffs of all IPPs were offered by the government upfront and approved by the Nepra which are in fact available on Nepra’s own website. Their monthly and quarterly indexations with currency and other factors are also regularly updated to the Nepra.

He said all invoices were verified at different levels before reaching the Nepra. The element of corruption in dispatch order and availability of plant and efficiency factor may have some issues but these could be individual cases involving officials at national transmission and dispatch company (NTDC), National Power Control Centre (NPCC) and Central Power Purchase Agency (CPPA) but such things could not be investigated through financial results but through different probe, he said.

Published in Dawn, October 14th , 2014