Expert Opinions IPP MOU’s Analysis

All changes are cosmetic and are to be applied if at all only in the future. There is absolutely no impact on accumulated circular debt (CD) or on-going tariff. According to the 2002 Policy MOU, Independent Power Plants (IPPs) invested in Pakistani Rupees at Rs 80 to a dollar in the Project; it will now be indexed to Rs 148 to a dollar. In this case government will give 17 percent Return on Equity (ROE) value calculated at double the value (34 percent) return annually on rupees invested notionally as no money was invested and it was all over invoiced in value of the plant. This is return on non-existent ghost equity. Heat rate audit of 2002 policy-based fuel oil projects must be conducted to recover the over billed amount of over Rs 45 billion to reduce circular debt and on-going tariff from first day of operations. There can be no sharing of theft. The IPP theft of efficiency and over charging of O&M has been established but now the state will share this theft 60:40 with the IPP sponsors over and above 34 percent annual return on their notional equity. The unclaimed amount of overcharging on this account is more than Rs 150 billion. 1994 policy plants are at the end of their useful life, all loans paid off and agreements only valid for 5 more years. Impacts will be minuscule. Wind Power Plants overcharging cannot be corrected unless their capital costs are verified and the over-invoicing by more than 100 percent rectified as plants costing US$ 75 million were booked at US$150 million. To reduce the on-going burden substantially, the take-and-pay mode should be activated