Moving the Independent Power Producers from the capacity-payments model to the take-and-pay arrangements may seem fairer, but the real test is whether this move will help reduce the power tariff. The IPPs would clearly prefer the present arrangement to continue, where the full capacity of a power plant is paid for by WAPDA, even if it does not supply it a single unit of electricity. In other words, WAPDA was bound to pay an IPP for its availability, not for its production. That might have seemed desirable in the dark days of loadshedding, but the result has been to create a circular debt problem, and potentially able to bankrupt the government. An additional danger has arisen, and is now threatening the IPPs, solar power.
WAPDA purchases the power from the consumer, and credits him or her against his or her use. The consumer does not have to pay inflated bills, the distribution companies get less cash, and they find it hard to make the capacity payments. As the capacity payments have a sovereign guarantee, the IPPs have the option of driving the government to bankruptcy.
There is an issue with the take-and-pay model, and that is that the IPPs run on imported fuel. Using them is still problematic for this reason, even if the proposed amendments include ending the government’s responsibility to guarantee fuel availability. This present attempt is perhaps the most through going attempt by their government to beat down the IPPs, and reflects the decline of thermal generation. In the panicked decision-making induced by load-shedding, thermal projects seemed the swiftest that could come online. That has not only proved environmentally damaging, enlarging a small national carbon footprint, but has also meant the spending of vast sums of foreign exchange of the import of fuel.
The country should recognise that the IPPs imbroglio is just the symptom of a bigger issue, the transition of the world’s economy from fossil fuels to renewables. It should realize that whereas it was poorly endowed by fossil fuels, it has a plenitude of renewable energy sources. These it should exploit, not just to keep up with the rest of the world, but to take the lead. There should be an end to the import of faded old technologies, as in thermal generation, and an adoption of renewable resources. It will not just be simply matter of transforming the power sector, but all aspects of life.
