With four Independent Power Producers, those who had set up plants pre-1994, or under the 1994 and 2002 power policies, have agreed to the early termination of their contracts, and a fifth, likely to follow suit very soon, Power Minister Awaiws Leghsri has finally been able to something he had so far refined from doing: put a figure on the likely saving the government will make on the electricity tariff. The government has identified public dissatisfaction as being primarily because of inflation, and within that inflation the component most resented by the consumer is the electricity tariff. Therefore, it was only logical that it try to tackle the issue. It is not just the domestic consumer who has been screaming, but also the commercial and industrial consumer. Not only are theory important to the economy of the country, but they are also the backbone of the ruling PML(N). The Minister has said that the reduction in capacity payments would mean a reduction of Rs 7 per unit in the tariff. Debt reprofiling, and coal re-sourcing could yield a further Rs 3.50 to Rs 7.50 per unit reduction. This would add up to Rs 10.50 to Rs 14.50 relief in tariffs. From this perspective, the Punjab subsidy for August and September, of Rs 14 per unit, created by slashing its development expenditure, may prove to be prescient. It would be the kind of insider trading the consumer did not mind,
An issue that needs to be addressed is why the IPPs had to be brought in, in the first place. Capacity payments are being represented as a burden around the economy, but they were the price of ending loadshedding. The rational way of avoiding repetition is to install generation capacity in advance. Renewables, particularly solar power, offer one way out, even though the oil lobby is against them. However, rationality has never been the nation’s strong suit. It is thus likely that the country will once again face a situation where it needs investment in the power sector, and quickly.
It may not even be the power sector. However, the government may once again have to offer terms so favourable to the other side as to be virtually criminal. At that point, investors will remember that the terms might be revised.
