Javed Ch ; Everything will be alright 11-10-24

 

Why we cant make the right decisions! Rao Manzhar Hayat 11-3-24

 

NA/Senate Passed six bills; SC Judges; IHC; Services Chief

 The National Assembly on Monday passed six bills, including one seeking an increase in the number of Supreme Court judges and another related to the extension of the terms of armed services chiefs, amid deafening protest by the opposition.

A few hours later, the Senate also passed the amendment bills. If President Asif Ali Zardari signs off on them, the changes — including to length of tenure (five years instead of three) as well as period of extension and reappointment (five years instead of three) — would apply to all current armed forces chiefs.

The six bills passed

• The Supreme Court Number of Judges (Amendment) Bill, 2024
• The Supreme Court Practice and Procedure (Amendment) Bill, 2024
• The Islamabad High Court (Amendment) bill, 2024
• The Pakistan Army (Amendment) Bill, 2024
• The Pakistan Air Force (Amendment) Bill, 2024
• The Pakistan Navy (Amendment) Bill, 2024

The first bill, related to the increase in the number of top court judges, was presented in the NA by Law Minister Azam Nazeer Tarar, who said that the government had proposed increasing the number of judges from 17 to 34.

According to the Supreme Court (Number of Judges) Act, 1997, “the [maximum] number of Judges of the Supreme Court of Pakistan other than the Chief Justice shall be sixteen.”

The maximum number of Judges of the Supreme Court of Pakistan other than the Chief Justice shall be up to thirty-three, the proposed bill read.

“This amendment will increase the number of judges in the Supreme Court up to 34, so that the backlog of cases can be cleared, and that after the 26th Amendment, we can have judges to form the constitutional benches,” Tarar said.

“Our bar lobbies and the SCBA (Supreme Court Bar Association) have been recommending this for a while now so that the four-bar court registries in Karachi, Quetta, Peshawar, and Lahore can relieve their thousands of pending cases. This number has been left open for the judicial commission,” the minister went on to say.

Soon after the law minister presented the bill in the assembly and finished his speech, voting on the bill was carried out despite the opposition fiercely protesting.

The proposed amendments to the Supreme Court (Practice and Procedure) Act, 2023, expanded the existing act to include additions made in the 26th Amendment, such as the introduction of constitutional benches.

SALIENT FEATURES OF BILLS PASSED BY BOTH HOUSES OF PARLIAMENT

Changes to Army, Air Force and Navy acts

• Tenure of all three services chiefs (chief of army staff, chief of
  air staff and chief of naval staff) to be five years, instead of
  three.
• Retirement age bar of 64 years (for generals, air chief marshals
  and admirals) won’t apply to these three functionaries;
  extensions, re-appointments for these posts (if any) will also be for five years.
• Tenure of Chairman Joint Chiefs of Staff remains unchanged, at
  three years.

Changes to SC Practice & Procedure Act

• Three-member body to fix cases reconstituted to include CJP, senior-most SC judge and senior judge of constitutional benches.
• Three-member committee comprising senior judge of constitutional benches and next two most senior judges to decide – through speaking order – whether matter falls within purview of constitutional bench, or not.
• Unless required by law, every matter before SC to be heard on ‘first in, first out’ basis, i.e. in chronological order.

Changes to number of judges

• Strength of Islamabad High Court raised from nine to 12 judges.
• Maximum strength of Supreme Court raised to 34 judges, including chief justice

The bill sought to add Article 191A of the Constitution — the creation of constitutional benches — to the preamble. The preamble in the 2023 act read: “[…] Article 191 of the Constitution provides that subject to the Constitution and law, the Supreme Court may make rules regulating the practice and procedure of the Supreme Court.”

Additionally, an amendment to sub-section (2) of Section 1 was proposed to ensure that the act came into force at the same time as the Constitution (Twenty-sixth Amendment) Act, 2024.

Moreover, the bill sought to expand subsections (1) and (2) of Section 2 to include the constitutional benches. According to sub-section (1), “Every cause, appeal or matter before the Supreme Court shall be heard and disposed of by a bench constituted by the Committee comprising the chief justice of Pakistan and two next most senior Judges, in order of seniority.”

This committee would be expanded to include, “The most senior judge of the constitutional benches” in the proposed bill. Conditions were included in case the seniormost judge on the constitutional bench had not been nominated — in which case the chief justice and second-most senior judge would make up the committee — and that the chief justice can nominate any Supreme Court or constitutional bench judge “if a member declines to sit on the committee”.

The bill would also insert a new section, Section 2A, into the existing act, which outlined the practice and procedure of the constitutional benches. “Where a question arises as to whether a cause, matter, petition, appeal or review application … is to be heard and disposed of by a Constitutional Bench or another Bench of the Supreme Court, the committee constituted under clause (4) of Article 191A of the Constitution shall … determine the question…

“… If it decides that a matter falls within clause (3) of Article 191A of the Constitution, [it can] assign it to a Constitutional Bench for hearing and disposal … [if it] does not fall within clause (3) of Article 191A of the Constitution, [it can] send it to the Committee constituted under section 2 for disposal by another Bench.”

The bill adds that the registrar of the Supreme Court shall provide the “requisite administrative and secretarial support to the constitutional benches” and subject to the availability of judges, constitutional benches shall comprise an equal number of judges from each province.

The 26th Constitutional Amendment, also known as the Constitutional Package, stripped the Supreme Court’s suo motu powers, set the chief justice of Pakistan’s (CJP) term at three years and empowered the prime minister to appoint the next CJP from among the three most senior SC judges.

It also enabled the creation of constitutional benches in the Supreme Court through the newly inserted Article 191A.

The Amendment was passed by the Senate with a two-thirds majority on October 20, with an equivalent majority by the National Assembly in the wee hours of October 21.

Amendment to acts related to armed forces

Defence Minister Khawaja Asif also tabled the amendment bills, aiming to extend the tenure of the chief of army staff, chief of naval staff, and chief of air staff from three to five years.

The government brought all the bills in the NA session through a supplementary agenda.

According to the Army Act Amendment Bill, 1952, the rules of retirement of a general in the Pakistan Army will not apply to the army chief, who will continue to work as a general in case of appointment, re-appointment or extension.

Apart from this, the House also approved the Pakistan Air Force Act, 1953 and the Pakistan Navy Amendment Bill, 1961, by a majority vote.

According to the statement of objects and reasons, “The purpose of these amendments is to make consistent the Pakistan Army Act, 1952 … The Pakistan Navy Ordinance, 1961 … and The Pakistan Air Force Act, 1953 … with the maximum tenure of the Chief of the Army Staff, the Chief of the Naval Staff and the Chief of the Air Staff and to make consequential amendments for uniformity in the aforementioned laws.”

The proposed bill to amend the Army Act, the Pakistan Army (Amendment) Act, 2024, aims to extend the tenure of the Chief of Army Staff from three to five years.

“In the said Act, in section 8A, in sub-section (1), for the expression ‘three (03)’ the word ‘five (05)’ shall be substituted,” the bill said.

Sub-section 1 of Section 8A states that “the President shall, on the advice of the Prime Minister, appoint a General as the Chief of the Army Staff, for a tenure of three (03) years.”

Similarly, the bill aims to increase the length of time the service chief can be reappointed or have their tenure extended to five years, instead of three as outlined in Section 8B.

Section 8B of the Army Act reads as follows: “The President, on the advice of the Prime Minister, may reappoint the Chief of the Army Staff for additional tenure of three (03) years, or extend the tenure(s) of the Chief of the Army Staff up to three (03) years, on such terms and conditions, as may be determined by the President on the advice of the Prime Minister, in the national security interest or exigencies, from time to time.”

“In the said Act, in section 8B, in sub-section (1)- 10 for the expression ‘three (03)’, occurring twice, the expression ‘five (05)’ shall be substituted,” the 2024 bill read.

An amendment was also proposed to Section 8C, which deals with the retirement age and service limits of service chiefs.

Section 8C states, “The retirement age and service limits prescribed for a General, under the Rules and Regulations made under this Act, shall not be applicable to the Chief of the Army Staff, during his tenure of appointment, reappointment, or extension, subject to a maximum age of sixty-four (64) years. Throughout such tenure, the Chief of the Army Staff shall continue to serve as a General in the Pakistan Army.”

The amendment bill has made a substitution to Section 8C, removing the 64-year age limit. The proposed amendment reads as follows: “The retirement age and service limits prescribed for a General, under the Rules and Regulations made under this Act, shall not be applicable to the Chief of the Army Staff, during his tenure of appointment, reappointment and/or extension. Throughout such tenure, the Chief of the Army Staff shall continue to serve as a General in the Pakistan Army.”

NA, Senate session adjourned

After passing the bills, the NA speaker adjourned the meeting of the National Assembly till 11am tomorrow.

Key Features of 26th Constitutional Amendment 2024

 Key features of 26th constitutional Amendment 2024

• Chief Justice of Pakistan's (CJP) tenure fixed at three years.
• Constitutional benches to be established at the SC and high courts.
• Senior-most judge of each bench to serve as presiding officer.
• Parliamentary committee to nominate new CJP from panel of three most senior judges.
• Committee to propose name to PM, who will then forward it to president for final approval.
• JCP, led by CJP and three others, responsible for appointment of SC judges.
• JCP to monitor judges’ performance, report any concerns to Supreme Judicial Council.
• Complete eradication of Riba (interest) from country by January 1, 2028.

Iqbal Javed Bajwa resigns from PIA post over fake Inter certificate

 

Pakistan International Airlines's (PIA) Deputy Station Manager in Birmingham Iqbal Javed Bajwa has reportedly tendered his resignation after failing to verify his educational certificate. 

A spokesperson of the national flag carrier told Geo News that the higher-ups had sought resignation from Iqbal, who is reportedly a brother of former army chief General (retd) Qamar Javed Bajwa, for submitting "fake" educational certificates

Rao Manzhar Hayat - August 2, 2024

 

Rao Manazar Hayat

 

IPP issue

•  
  
  
• The issue of electricity bills is spiralling out of control and if not addressed properly, the situation can spark major social unrest.
• Adding insult to injury, political parties such as the PML-N and PPP, once part of the PDM and responsible for creating the mess in the energy sector in the last three decades, came out to support protests by people against the rising cost of energy.
• Two years ago, in my article “From being energy deficient to energy inefficient, I focused on issues of inefficiencies in the power generation and distribution system. However, to address the issue of rising circular debt in totality, which has reached a staggering Rs2.5 trillion, we cannot ignore the elephant in the room, which is the contracts struck not only with international but local independent power producers (IPPs) at unfavourable terms (for consumers).
• It all started with the power policy in 1994 by the PPP government and carried over during PML-N tenures to incentivise private investment in the power sector. However, due to the lack of capacity and willingness of local investors, the government had no option at that time but to offer attractive terms to woo foreign investors.
• The incentive structures offered were returns guaranteed to be indexed to the US dollar, and indexed to US inflation rather than the inflation in Pakistan. At that time, the juicy return on equity (ROE) of 17% was the cherry on top of many favourable terms mentioned above.
• Later, local investors could not resist the temptation and finally jumped on the bandwagon as they saw the mouthwatering return still existed during the revised 2002 power policy with only difference was the reduced ROE at 12%.
• The Musharraf government, at that time, was unable to develop a consensus on Kalabagh Dam and was in desperate need of adding more base capacity. It continued on the disastrous path of adding less favourable, inefficient, costly and environmentally unfriendly residual fuel oil (RFO)-based power plants termed Peaker plants globally.
• IPPs are depicted as the source of all evil and their contracts are blamed as the root cause of all the issues in the energy supply chain. But isn’t that the responsibility of the government to safeguard the interest of the common consumer while signing those business contracts with the IPPs?

Some of the key areas highlighted here are well-known but often ignored or compromised due to many political and financial gains.

• One of the key issues with IPP contracts in Pakistan is the lack of transparency in the negotiation and award process. Often, these contracts are negotiated behind closed doors, leading to allegations of favouritism, corruption and kickbacks paid in Swiss accounts.

  To address this, the government should implement a transparent bidding process for IPP contracts, ensuring that all interested parties have an equal opportunity to participate. This can be achieved by publishing contract terms, bidding criteria and the results of the bidding process to promote accountability.

• Many IPP contracts in Pakistan have long-term commitments, often spanning 20 to 30 years. While long-term contracts provide stability for investors, they can also lead to inflexibility in adapting to changing market conditions and technological advancements.

  To address this issue, the government should consider shorter contract durations with built-in mechanisms for renegotiation or extension based on performance and market dynamics. This would allow for more adaptability and prevent locking-in unfavourable terms.

  Capacity payment is called some sort of evil while it is not the phenomenon limited to Pakistan. New York City paid around $4.5 billion (Rs1.35 trillion) in terms of capacity payments to Peaker plants between 2010 and 2019, while they only run between 100 and 500 hours per year.

  The issue is the contribution of these RFO-based Peaker plants to the energy mix, which is currently 14%, while globally these plants run during periods of extreme demand and form a maximum 4-6% of the total amount billed to customers.

  The government already has a merit list to run power plants based on efficiency and cost, which is violated frequently.

• The tariff structure in IPP contracts can be a contentious issue. Often, tariffs are set at a fixed rate, which may not accurately reflect the changing cost of energy production. This can result in frequent and complex fuel adjustment surcharges, as the price of oil fluctuates.

  To address this, the government should explore innovative tariff structures, such as a combination of fixed and variable tariffs, which better align with market realities and encourage efficiency improvements.

  Recently, there have been litigations between the government of Pakistan and IPPs on capacity payments and performance guarantee issues, which have proven very time-consuming and costly to resolve.

  To address this, Pakistan should establish an impartial and efficient dispute resolution mechanism, possibly through an independent arbitration panel, to ensure fair and timely resolution of disputes.

  Last but not the least, the environmental and social impact is often neglected or such regulations are not properly enforced such as conducting strict environmental and social impact assessments (ESIA) before approving IPP projects.

  Additionally, it should encourage the implementation of sustainable practices and renewable energy sources to reduce the environmental footprint of energy generation.

  The writer is a financial market enthusiast and is attached to Pakistan’s stocks, commodities and emerging technology

Miscreants blow up gas pipeline in Balochistan’s Mach

 July 1, 2024:  Miscreants have blown up a 24-inch diameter Sui gas pipeline in Mach, resulting in a disruption of gas supply to various areas, including Quetta. The damage caused by the explosion has led to a complete suspension of gas supply.

Punjab Finance Minister Shujah Ur Rehman Emotional Budget Speech 2024

https://www.youtube.com/watch?v=82xIt_Z70LQ 

Rao Manzhar Hayat - Daily Express June 8, 2024

 

Javed Ch - Daily Express 6-5-2024

 

Zulifiqar Cheema - Daily Express May 23 2024

 

Javed Ch May 21st, 2024

 

IPP's Scandal in Paki

 In the 1990s, the World Bank started pushing for the liberalisation of energy markets. The communist Soviet Union had just collapsed. And the belief that governments had no job running businesses was gaining steam around the globe, making it easier for the World Bank to convince many countries to hand over the job of electricity production to private companies.

Thirty years since the privatisation trend began, that experiment has turned into a nightmare of inflated and seemingly insurmountable bills for close to a billion people in developing and low-income countries, including Bangladesh, Ghana, The Gambia, Indonesia, Kenya, Nigeria, Pakistan, the Philippines, Rwanda, Tanzania and Zambia.

Despite abundant power plants in these countries, tens of millions of people have to endure blackouts every day. Since governments don’t have the money to buy expensive electricity, they often borrow from banks to make the payments, plunging their already heavily indebted populations further into debt.

Private electricity generators, known as Independent Power Producers (IPPs), are now facing pushback from the public, politicians and activists as they drain national budgets.

People know little about IPPs since households and factories don’t interact with them on a day-to-day basis. Utility companies serve as the middlemen, interfacing with the IPPs to buy electricity and collecting bills from customers, leaving end consumers with no direct access to the actual power providers.

In many cases, IPPs, which own and run power plants, are backed by foreign investors headquartered in rich countries and are managed via offshore firms, beyond the reach of local laws. As for the equipment like turbines and boilers needed for the power plants to function, a handful of companies in the United States, Germany, France and China produce these parts.

The business model IPPs follow involves selling electricity to state-run utility companies under long-term contracts, known as Power Purchase Agreements (PPAs), which are kept confidential and therefore away from public scrutiny. The PPAs offer guaranteed returns on capital to private owners even if no electricity is produced. Payments are made in US dollars even though the utility companies collect bills in local currencies. The PPAs also include take-or-pay clauses, which means a public utility company must buy power from the IPP even if it’s too expensive or there’s no need for it. Corruption has flourished in multimillion-dollar deals, and a whole industry of consultants whose job it is to help multinationals get lucrative project deals has emerged.

Whenever a country faces an energy shortfall, IPP consultants resort to intense lobbying, offering PowerPoint presentations to government officials and promising them a future of steep economic growth that is only possible if electricity capacity is increased. As blackouts lead to street protests, governments panic and rush to add megawatts (MW) to the grid. In the end, too much generation capacity is purchased and consumers — and taxpayers, in general — are left to foot the bill.

“I'm sure that they (consultants) play different roles in different cases, but certainly one of their roles on occasion has been to funnel corrupt money,” says Professor Louis T. Wells, who teaches international management at Harvard Business School. He adds: “You pay the consulting firm money for its services and some of that money goes as bribes to officials to smooth the deal.”

One of the most blatant abuses of IPP projects recently played out in the West African country of Ghana.

The dumsor saga

In May 2016, heavy-duty trucks — each one laden with a 25 MW generator — pulled onto a dusty field in western Ghana. A jumble of wires connected them together and this ‘operation’ became the 250 MW AMERI (Africa and Middle East Resources Investment) power plant.

When that project deal was signed a year earlier, frequent hours-long power outages were derailing daily life in Ghana. So bad was the situation that “dumsor,” the Ghanaian term for load shedding, became an internationally recognised word and was included in the Oxford Dictionary.

Ghana’s electricity crisis had begun on August 27, 2012, when pirates tried to hijack an oil tanker in the Gulf of Guinea. As a navy patrol chased them, the pirates tried to escape with the tanker’s anchor dragging along the seabed. It ruptured the West African Gas Pipeline, which transports natural gas from Nigeria to Ghana, where it was used as fuel to run thermal power plants.

With no gas, the power plants were shut. A dry spell had reduced water flow in the Akosombo Dam and cut off the output of its associated hydroelectric plant, which had historically produced the bulk of Ghana’s electricity. As blackouts persisted, the government of then-President John Mahama went into overdrive, signing agreements with many IPPs.

“Politicians can make 10 percent, 20 percent on contracts with IPPs. They won’t be able to do that with a public sector electricity utility,” says Barnaby Joseph Dye, a lecturer at the University of York, who researches infrastructure projects in the Global South.

Until that point, Ghana’s public utility, which runs its own power plants, had done a commendable job in meeting the country's electricity requirements. Ghana, with a population of 33 million, has an electrification rate of 86 percent.

Everyone is connected to the grid except for those living in far-off villages, says Dye.

“But that doesn’t mean people use a lot of electricity. They need to maybe run a fridge, a television or a washing machine. But Ghana added much more electricity than it needs — much more than the demand.”

Corruption is rampant in multimillion-dollar power projects. Built on the city outskirts, people don’t know what goes on inside the smoke-emitting facilities.

“It’s a way of rent-seeking. Politicians can extract money from the IPPs,” says Dye.

The AMERI power plant is a classic example of how such shady deals work.

The person who put the deal together and negotiated the terms with Ghana’s government was one Umar Farooq Zahoor, a Norwegian of Pakistani descent. He was the CEO of AMERI, a company that was registered in Dubai, UAE, months before President Mahama’s government awarded it the contract. This shell company had no prior experience in the power industry.

Zahoor was wanted by the Norwegian police in connection with the largest bank fraud in the Nordic country’s history, and Interpol was on his tail when the deal was signed. More recently, Zahoor was in the news as part of the ‘watch’ scandal, which led to the sentencing and imprisonment of Pakistan’s former Prime Minister Imran Khan.

In the deal Zahoor struck with Ghana, AMERI essentially played the role of a middleman. It got the contract and arranged finances, then handed over all the technical work — including procurement of generators and running of the plant — to a third party.

The trailer-mounted generators were manufactured by General Electric (GE), the American power equipment giant that has been a key beneficiary of the energy sector’s liberalisation in the past three decades.

A specific type of gas-fired GE power plant called TM 2500+ was installed in Ghana. Though this type of power plant has been deployed in many countries, it is designed as a stop-gap measure and comes in handy only when there’s an immediate need to shore up electricity output. These generators can be shipped and transported quickly — there’s a reason they’re mounted on the back of truck trailers. GE says these generators can be up and running in 11 days.

The AMERI project — developed on a build, own, operate and transfer (BOOT) basis — cost Ghana $510 million. An investigation by the Norwegian newspaper Verden Gang (VG) determined that the deal was overpriced by at least $150 million. In Ghana, the project fanned intense debate over corruption allegations and eventually led to Energy Minister Boakye Agyarko’s removal in 2018.

As for then-President Mahama, he denied wrongdoing in awarding the contract. But soon after being voted out of office in 2016, he accompanied an AMERI delegation to Namibia where the company was trying to win a power generation contract. It never did.

Around a dozen IPPs now operate in Ghana. The country doesn’t need so many, yet it has to pay them every month as dictated in the iron-clad PPAs.

By the end of June 2023, IPPs claimed the Ghanaian government owed them $1.7 billion.

And as scandalous as these facts and figures are, Ghana is far from being the only case in which a few executives and middlemen deceived an entire nation.

A ‘capacity’ crisis

This wasn’t the first time a country went from facing a severe electricity shortfall to an excess power supply, with little means to pay for it except by drastically jacking up consumer tariffs.

In Ghana, the government has increased electricity tariffs by more than 50 percent in the past few months so it can raise enough funds to pay the IPPs.

Indonesia, Nigeria and Pakistan have all gone through a similar cycle.

But how can extra power capacity become a problem? Isn’t it convenient to have spare megawatts on hand? Why can’t we just switch off a power plant if we don’t need it?

“IPPs are in business to make profits and pay debts,” says Kingsley Osei, a lawyer who studies legal contracts for infrastructure projects like power plants.

Up until the 1990s, the World Bank, the Asian Development Bank and other development financial institutions financed large power projects in the public sector. These projects — such as the Tarbela hydropower project in Pakistan, completed in 1976 — were aimed at propping up the power sector in developing countries. Profit-making was not a priority.

Once the private sector entered the scene, a new system emerged that was geared towards ensuring sufficient return for private investments.

So lucrative was the business that The New York Times noted in a 1995 story that “from gambling companies to satellite and cable television owners,” everyone was rushing to bid for power plants.

Private companies borrow hundreds of millions of dollars from banks to build a power plant. Whether the power plant generates electricity or not, they have to pay interest and principal on loans. Similarly, they employ engineers to run machinery, buy supplies like lubricants on a regular basis, and pay insurance premiums. And then there’s the profit. Since these are all fixed costs; they won’t go anywhere even if a plant does not operate.

So once a power plant is built and capacity is added to the grid, there’s no going back on it. To ensure they are adequately compensated, the IPPs sign PPAs with the government that include a ‘capacity payments’ clause — a contractual obligation that’s draining the budgets of several developing countries.

For instance, an agreement for a 100 MW power plant covers a period of 20 years, during which the government, via its utility company, promises to buy 80 percent of the plant’s capacity no matter what the circumstances. This means even if the national grid is not taking a single megawatt from the power plant, the government (taxpayers) pay for 80 MW to the plant’s owner.

The contracts are airtight, often protected under Bilateral Investment Treaties (BITs), which allow private firms to sue governments at the International Center for Settlement of Investment Disputes (ICSID). Losing a case at this World Bank-led arbitration court can result in hundreds of millions of dollars in penalties.

Even developed countries such as the Netherlands and Spain have been dragged to the ISCSID by power producers in recent years.

How the IPPs became so pervasive is a story that can be traced back to the UK during the government of late Prime Minister Margaret Thatcher.

A grocer’s daughter

In the 1980s, Thatcher began privatising state-run companies, including water and power utility providers. By the time she stepped down in 1989, more than 40 public sector companies, including the British Telecom, were in private hands. Tens of thousands of workers were laid off.

Across the Atlantic, US President Ronald Reagan had come to power. Like Thatcher, he was against a bigger government and believed a free market could take care of itself.

“You know, Margaret Thatcher was the daughter of a shop owner. Her father owned a local store,” says David Boys, Deputy General Secretary of Public Services International, a global union of government employees.

“In her mind and also in her political philosophy, like a lot of those who come from the Milton Friedman school of thought, human beings will get their freedom in the market because they are free to exercise their purchasing power.

And by exercising their purchasing power, they’re able to force the companies to change their behaviour.”

But this idea didn’t exactly work in the energy sector.

For proponents of free markets, liberalisation of the electricity market was the next best thing to complete privatisation.

The World Bank proposed an “unbundling” of the power sector. Unbundling meant separating the generation, transmission and distribution parts of the electricity supply chain and selling them off in parts.

In public hands, state-run utilities did everything from running power plants to carrying electricity on high-voltage wires (those big towers you see on city outskirts) and selling it to consumers.

Power utilities are natural monopolies — you can’t have two separate power cables bringing electricity to your home. So the idea of fostering competition between companies in the transmission and distribution parts of the supply chain wasn’t replicated widely. It was the generation of power — power plants — that became a target for private investors.

In those initial years, World Bank experts wrote lengthy reports in favour of the IPP model. They’d make a case for a country’s economic growth and would calculate all the electricity it would need in the coming years to adequately supply its households and factories. The government can’t do this on its own, they’d argue.

Robert Ichord, the former deputy assistant secretary of the US Department of Energy, says energy market’s liberalisation eased pressure off the public sector, which haemorrhages money due to corruption and political interference.

Ichord was among the officials who played a vital role in promoting energy market liberalisation in the 1980s and 1990s. In 1986, he wrote a concept paper titled ‘Private Sector Power and Distribution Project,’ in Pakistan, arguing in favour of the model.

The countries that get into trouble with IPPs are mostly those suffering from chronic financial mismanagement, he argues, adding that the electricity sector in many of these countries is burdened with subsidies as electricity is sold to consumers below its actual cost and theft is rampant.

Another thing that has put power plants under the spotlight is the high price of fuel.

Most of the IPPs around the world are thermal power plants. They use oil, gas or coal as fuel to make steam, which then turn turbines to generate electricity. The cost of electricity shoots up with the rise in fuel prices. But politicians, fearing backlash from voters, drag their feet on increasing consumer tariffs. As the deficit builds up, governments struggle to pay IPPs.

The money to construct these thermal power plants in developing countries mostly comes from rich nations. That’s primarily because countries like Kenya that need electricity don’t have mature capital markets to raise hundreds of millions of dollars for the investment required.

Foreign investors ask for a higher rate of return when they put money in developing countries, which they see as riskier destinations for their investments, says Harvard Business School’s Louis T. Wells, who is co-author of a seminal book on IPPs, ‘Making Foreign Investment Safe.’

“You expect the investor to take some risk. But here the risk is shifted to the government.”

It wasn't only the investors’ capital that was looking for newer markets.

The rise of IPPs in developing countries came around the same time as power equipment manufacturers from rich countries were running out of orders in the mature markets of North America and Europe. They needed new customers for their thermal power plants.

Big energy firms like General Electric, Foster Wheeler, Combusting Engineering, Japan’s Marubeni and Germany’s Siemens, which all provide electricity generation machinery and services, were vying for customers. And all of them wanted to get a foothold in Southeast Asia’s biggest economy: Indonesia.

Looking eastward

On April 14, 2013, two FBI agents in plain clothes arrested Frederic Pierucci, a senior executive at the French industrial plant giant Alstom, at New York’s JFK airport.

Pierucci had arrived in the US from Singapore following a routine business trip. Now he was facing years in prison in a case of bribery involving a Tarahan Power Project in Indonesia.

Alstom was one of the world’s largest manufacturers of nuclear power plants. It was also a market leader in boilers, a key component of coal-fired power plants.

In the ‘90s, Indonesia, which sits on massive coal reserves, had signed contracts for dozens of coal-fired power plants. For years, Alstom, General Electric, Mitsui and Chinese electricity equipment makers have competed for projects there.

Middlemen or consultants like Zahoor were key to getting deals. They’d cosy up with powerful politicians and make a case for equipment manufacturers. Corruption was rife. All of former President Suharto’s six children had stakes in power plants. Alstom even set up a subsidiary in Switzerland for the purpose of making payments to ‘consultants’ who helped the company get access to politicians and win bids.

Even though Pierucci was never charged with taking bribes, he was accused of authorising payments to a middleman to help get contracts for Alstom.

After spending more than a year in prison, he was released in a plea bargain, which he later wrote in his book ‘American Trap’ was a ruse to bully the French firm to sell its power business to GE.

He didn’t respond to TRT World’s request for an interview.

His story offers a rare insight into the inner workings of power plant equipment suppliers and engineering firms.

US authorities have regularly targeted power companies from other countries, including Germany’s Siemens and Japan’s Hitachi, for violating the Foreign Corrupt Practices Act — a law that is applicable to any company that is, in some way, related to the US market.

“My question is, just how do these US companies go about securing business for the last fifty years without once getting their hands dirty? Admittedly, these companies have the backing of US diplomacy,” writes Pierucci in this book.

“In 2010, for example, GE was able to sell $3 billion worth of gas turbines to the Iraqi government by mutual agreement (i.e. without a tender bid) under abnormal conditions,” he notes.

In the past three decades, Indonesia has seen several rounds of IPP investments — each followed by concerns that too much electricity has been added to the grid.

Putra Adhiguna, a Jakarta-based analyst at the Institute for Energy Economics and Financial Analysis, says new power plants are built on assumptions that greater economic growth will spur energy demand as more factories are built and people spend money on electrical appliances.

“It’s hard to weed out which one is the real cause to add so much power to the system and whether it was purely based on government miscalculation of the economic growth,” he tells TRT World.

“But there’s also a possibility there are some vested interests that came in and wanted to build a lot of coal plants with 25-year guaranteed payments.”

The country’s state-run utility provider, PLN, has signed long-term contracts with IPPs. As with the case of Ghana, PLN now has to pay millions of dollars to IPPs every month in capacity payments.

Many Indonesians grew up listening to stories about how former strongman Suharto and his relatives made billions of dollars with power projects like Paiton-1 in the 1990s. But PLN still managed to sign contracts with new IPPs for 35,000 MW from 2015 onwards.

“I think the public does not have the technical understanding to comprehend what’s happening. But now we are seeing the effect stack up on the budget,” says Putra.

According to experts, contractual obligations with coal-fired power plants are hampering Indonesia’s efforts to transition to green energy.

Jakarta can only hope the IPPs do not become a financial burden as they have to debt-ridden Zambia.

Till debt do us apart

In November 2020, at the height of the Covid-19 pandemic, Zambia defaulted on its debt, becoming the first African country to do so.

Zambia refused to repay $42.5 million to its foreign bondholders, saying it needed the funds for its own healthcare system and to feed its people. The case highlighted how greatly the pandemic pummelled low-income economies. Zambia’s case became a key motivator for world leaders to kickstart talks about debt rescheduling for countries under distress.

Zambia currently owes more than $17 billion to multiple foreign creditors, which include investment funds like BlackRock and bilateral creditors like China. What many people don’t know is that one of the reasons behind Zambia's high debt burden is IPPs: more specifically, it owes $1.7 billion to only four IPPs.

IPPs in Zambia are a relatively new phenomenon. Before their arrival on the scene a few years ago, the private sector’s share in total electricity production was only around 5 percent; by 2015 it had reached 24 percent. Like it had happened in other developing countries, private sector participation in electricity generation increased primarily because of the incentives the government offers to the IPPs.

For instance, the UK-based Great Lakes Africa Energy company, the majority stakeholder in the105 MW Nadola power plant, takes home a return of 25 percent.

IPPs in Zambia have tax incentives; they don’t pay levies on import of machinery; and the government has taken upon itself to build — for the IPPs, no less — high-voltage transmission lines, which travel long distances to bring electricity to major cities.

Under the contracts signed between Zambia and the IPPs, the government also takes upon itself the responsibility to supply fuel to the power plants.

Development Financial Institutions and foreign trained consultants want everyone to believe that IPPs can help pull people out of darkness.

“We needed private investment because of the inefficiencies in the public sector. Public utilities can be quite inefficient in sub Saharan Africa,” says Johnstone Chikwanda, an energy expert who has served on Zambia’s Energy Regulation Board.

“We became aware that relying on public utility won’t help us electrify the country.”

The argument about public-sector utilities being poorly managed, loss-making entities is neither new nor unique to Zambia. The World Bank and its army of consultants often highlight this point to make a case for privately-owned IPPs.

But in half of all European countries, the electricity grid still remains in public hands. In France, the biggest electricity producer is EDF, a state-owned company. Same is the case in Spain.

Even Chikwanda, who supports private sector participation in the electricity market, says the current IPP model is flawed.

“My recommendation is that we should revisit some of the obnoxious clauses in power purchase agreements not just in Zambia but everywhere else,” he says.

Renegotiations won’t be easy. Private power firms keep an army of lawyers on their payroll. The understaffed regulators struggle to keep up with all the technical know-how.

For fragile economies, time is running out.

This year, Pakistan is due to pay close to $5 billion in capacity payments. In Kenya, the government is struggling to come up with funds to pay IPPs. And in Bangladesh, which last year marked the milestone of bringing electricity to every village, officials are regretting the decision of signing deals with so many IPPs.

“It is funny that our country has so much generation capacity, yet it is facing load shedding,” says Shafiqul Alam, a Dhaka-based energy analyst.

SOURCE: TRT WORLD