The power sector regulator has questioned the dollar indexation arrangement in agreements with the independent power producers (IPPs).

The National Electric Power Regulatory Authority (Nepra) on Wednesday asked the government as to why the dollar rate was not kept at Rs200 instead of Rs148 while negotiating a new deal with the IPPs.

A total of 47 IPPs have struck initial agreements with the government. Of these, final agreements have been signed with 30 companies.

With estimated savings of Rs836 billion, the revised deal will result in a reduction in the circular debt. Average reduction will be Rs0.25 per unit of electricity, which will increase to Rs0.40 per unit in 2027.

However, officials did not indicate whether any relief would be provided directly to consumers. A representative of the Central Power Purchasing Agency-Guarantee (CPPA-G) revealed that initially the government and the IPPs agreed to freeze the dollar rate at Rs168, but it was reduced to Rs148 in the final agreement.

Losses would not be passed on to consumers and only savings would be shared with them, he said. Nepra Chairman Tauseef H Farooqi was of the view that the “actual performance” of CPPA-G would be considered after the dollar crossed Rs168.

CPPA-G Chief Financial Officer (CFO) Rehman Akhtar said it was a success for the government in both ways, adding that the agreement at the current rate was also a win-win situation for CPPA-G.

The Nepra chairman asked the CPPA-G official whether they had analysed the benefit in case the dollar reached Rs170, Rs175 or more than Rs200. Responding to that, the CPPA-G CFO replied that their analysis was based on 5% annual depreciation.

However, if the dollar stays at the agreed rate of Rs148, it will be beneficial to the government in the case of foreign lenders but not in the case of local lenders.

Published in The Express Tribune, March 4th, 2021.

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