Terminating contracts of compliant power plants would discourage foreign investment: Hubco CEO

The matter of increased capacity payments to power plants has sparked a heated controversy once again. To keep their power plants operational and accessible to provide electricity at all times, including during periods of low demand, generation companies charge capacity payments as a fixed fee. These payments are crucial to the economic survival of power plants.

“Capacity charges include loan repayments, interest, fixed costs for plant maintenance, and a small return on equity,” Kamran Kamal, CEO of Hub Power Company (Hubco), said in an interview with Nukta.

Kamal argued that if power plants are found violating laws or contract provisions, their agreements should be terminated. “However, if they are compliant, there is no rationale for discussing the termination of their contracts”.

He said terminating agreements of power plants would send a negative message and would discourage foreign direct investment flows in the country.

He highlighted that electricity generation is just one part of the supply chain, which also includes transmission and distribution, each incurring its own costs. Kamal pointed out that a significant portion of transmission, distribution, and generation is government-controlled, necessitating comprehensive reforms across the board. “Just targeting power generators for reform is unjustified”.

He also mentioned that agreements with power generators were already renegotiated in 2001 and then 2020. The 2020 agreement fixed the dollar value at PKR 168/$ for payments to power plants, providing an annual relief of approximately PKR 300 billion to consumers. Over the past four years, this has amounted to PKR 120bn in relief, with an expected total of PKR 800-900bn over the lifespan of the power plants.

Kamal criticized cross-subsidies and suggested that industrial tariffs should be based on key performance indicators. He argued that the notion of needing subsidies for exports is counterproductive.

On Hubco’s mining ventures, Kamal revealed that the company has partnered with Ark Metals to develop a small copper mine in Balochistan. “Mining is an overlooked sector in Pakistan, despite Balochistan being part of a rich copper belt stretching from Greece to Indonesia”. Kamal highlighted the importance of copper, precious metals, and rare earths in modern technology, from mobile phones to electric vehicles.