The Pakistan government has threatened to scrap all power purchase agreements (PPAs) with independent power producers (IPPs) because of the high tariffs which are being paid to the companies by the Water and Power Development Authority (WAPDA), official sources have suggested.
The Prime Minister has directed the Minister for Finance and the Minister for Water and Power to re-negotiate all PPAs. If the IPPs do not agree, the agreements will be cancelled. All 19 IPPs have been asked to reduce rates by at least 20 to 25 per cent.
However it is believed that the World Bank, which has backed IPP projects in Pakistan, has warned the government of serious consequences if any agreements with IPPs are scrapped. Future loans to the country could be in jeopardy.
Independent power producers are currently selling power to WAPDA at $0.065/kWh. One of these companies, AES, also has a power plant in Bangladesh which is selling power for $0.025/kWh.
The IPPs have responded to the government move by denying that the agreed tariffs are too high, and claiming they cannot make big reductions. They have suggested that the crisis could be resolved if they were allowed to import their own oil rather than buy from the state company, if they were able to increase their production capacities and if they could export power to India.
The government has escalated the crisis by issuing a decree that allows it to seek cancellation of power contracts found to be obtained corruptly.
The original power purchase agreements were signed by the previous government of Benazir Bhutto. The present government has accused the Bhutto government of turning a blind eye to huge illegal payments in return for lucrative contracts.