ISLAMABAD: Sector experts stated that in a majority basis, none of these Independent Power Producers (IPPs) sponsors have any net equity invested in these projects.
They have no skin in the game. It is what we call in Punjabi: “free fund”, they added.
Background discussion revealed that the process of setting up an IPP in Pakistan involves:
1) Very good connections in the government and bureaucracy
2) Availability of upfront equity portion equal to 20% of project cost (out of which 10% to be subsequently replaced and funded through an IPO at the PSX)
3) Appointment of an EPC contractor and an O&M contractor
4) Agreeing an elevated level of project cost with these parties (which would eventually take care of and cover the 10-20% of net sponsor equity invested)
5) Raising debt through local and international financial institutions and achieving financial close, and
6) Once COD (launch of commercial operations) is achieved, providing foreign bank account details to the EPC contractor so that they can deposit the over-invoicing portion of “kickback” into that account.
Any government, whether the present one or a future PTI one, will be / would be doing a favour to these IPP owners by undertaking this informal but straightforward renegotiation process that is currently ongoing, rather than launching a formal forensic audit investigation and asking them the following:
1) How much equity they invested?
2) Where did that equity come from (source of funds / AML etc.)?
3) Quantum of over-invoicing agreed with EPC and how much kickback they received from the EPC and in which foreign bank accounts?
4) Making the EPC contractor part of any such investigation
5) Potentially looping in the World Bank and other IFI’s and local banks as well since they have been funding these projects (some of us are aware of what happened in the HUBCO deal back in the day, how dirty it was, and which World Bank officials were involved in “arrangement fees” and “commissions”).
