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PASSING the buck has become a national trait. The government, having run out of rickshaw drivers and street food vendors with billions in benami (proxy) bank accounts, had to turn to the good old Independent Power Producers (IPPs), the favorite whipping boys of political parties. In one fell swoop, outgoing governments and the investments they brought in are tarred with the brush of suspicion.
This piece is not about defending IPPs, and there are no two opinions about better training for our officialdom to safeguard citizens’ interests while entering into agreements.
Who would not want a lower electricity bill? Make electricity free if you will, but then please do not insult the citizens’ collective intelligence by incessantly talking about making Pakistan ‘a magnet for investment’. Honouring contractual commitments backed by sovereign guarantees is the bedrock of investor confidence.
When push comes to shove we turn to the IPPs.
Could the power purchase agreements have been negotiated better? Yes and no. Yes, because hindsight is always 20/20, and no because of the exact same reason, ie that was then, this is now. Let us consider a simple example. Pick up any rent agreement and you would realise that it could have been negotiated variously to benefit either of the parties. The monthly rent and the amount of advance deposit could have been different; and the notice period for vacating the premises could have been shorter or longer. The crux of the matter is that an agreement has been entered into and it must be adhered to for the duration agreed to by the parties and it can only be annulled according to the conditions mentioned therein. Consider for a moment a son petitioning a court of law that his father was negligent in entering into a tenancy agreement and as he has since died; the petitioner will neither pay the rent nor vacate the house.
What one government does to its predecessors comes back to haunt it when it is out of office. The PML-N accused the PPP in the 1990s of determining very high per unit price of electricity in return for allegedly receiving kickbacks from the IPPs. It did not matter to anyone that the IPPs were invited to invest at a predetermined unit price. Another grouse against these agreements was that far too many IPPs were invited to instal far too great a generation capacity leading to a glut. It turned out that against the then 2,000 megawatts shortfall, only 1,000 MW surplus resulted over time.
Decades under martial laws were wasted to create a bogey of an enemy waiting to devour us from across the eastern border. Decades under elected governments were wasted in street demonstrations to determine who brought them to power and who orchestrated their ouster. We just did not have the time or gumption to develop our hydropower generation resources and maintain and upgrade the distribution network. When demand and supply push came to shove, we turned to the IPPs for a quick thermal solution.
As soon as we have breathing space, or think we do, we want to wriggle out of agreements with IPPs. And what better excuse than to accuse the previous regime of corruption and the IPPs of behaving like profit-seeking businesses instead of the nonprofit entities we want them to be?
Pakistan currently faces a $6 billion fine awarded by the International Centre for Resettlement of Investment Disputes for reneging on the Reko Diq mining deal with Tethyan Copper Company. The global arbitrator has also fined Pakistan for breaching a rental power agreement with a Turkish company Karkey Karadeniz Elektrik Uretim. The award stands at over $1bn and keeps rising due to accruing interest payments.
What a fantastic time for the IMF to suspend its regular programme in ‘mutual agreement’ with the government as it was full of conditions like private-sector-led growth, ease of doing business reforms to attract investment, and fiscal responsibility, etc. The emergency dole programme on the other hand means no-questions-asked quick disbursement, a win-win for the lender and the government.
The IPPs can challenge the recent accusations of overbilling under the heads of fuel, O&M and capacity charges in the courts of law and win for all the government cares. It will go to the IFIs for loans to pay the penalties. Sooner or later, the IMF would resume its ‘regular’ programme complete with conditions like passing on the full cost of electricity generation and distribution to the consumers. The government will readily agree, but come general elections, it will reintroduce the subsidies in every sector to win over the voters. The Fund will have to declare ‘reform reversal’ and suspend the programme. The next administration will claim that it inherited a ‘ruined economy’ and the cycle of beg, borrow and steal will continue. So shall the claims of turning Pakistan into ‘a magnet for investment’.
The writer is a poet and analyst.
Published in Dawn, May 4th, 2020
