IPPs: Much Ado About Nothing

According to a research report by AKD Securities, authorities in Pakistan have decided to retire/ gradually phaseout 15 IPP contracts with immediate effect.

Planned terminations for the IPPs include the following: KAPCO, Kohinoor Energy, Gul Ahmed Energy, Liberty Power, Tapal Energy and Attock Gen Limited. 

Phased-out retirement for the IPPs includes the following: HUBCO Base, Lalpir Power, PakGen Power, Rousch Power, Fauji Kabirwala, Habibulla Coastal, Japan Power, Saba Power and Southern Electric.

The brokerage house is of the view that with many of these capacities already expired/ non-operational due to their fuel/ generational inefficiencies, authorities have focused on the low-hanging fruit by gradually terminating/ phasing these IPPs out.

It's important to note that these IPPs were part of the master-agreement amendments in 2020 as well, which led to a downward negotiation of their ROE components.

Four of the six IPPs planned for immediate retirement have their PPAs already expired, meaning they do not bill capacity payments to the power purchaser.  

Therefore, it is believed that this move will have minimal impact on the power purchase costs currently billed towards the CPPA-G.

However, early retirement of IPPs with remaining tenures may be settled with a payout of present value of capacity payments due for the remaining tenures.