Hubco Power Purchase Agreement

Under the 1994 IPP policy, Hubco was entitled to an IRR of 17% in US dollars, adjusted for US inflation. This figure may certainly seem quite large, especially considering that in the United States, PPIs receive an IRR of 10% which is not always adjusted for inflation. Nevertheless, investments in Pakistan are much riskier than investments in the United States and so the government needed a higher IRR to attract investors in the country`s energy sector. The prime minister`s plan was simple: if the problem was that there was not enough electricity and the electricity produced was too expensive, the way to solve both problems at the same time would be to add a lot of additional power generation capacity that consumed a much cheaper fuel. And faced with the electoral constraints of their five-year term, the Prime Minister wanted everything to be done quickly. The main plant – a furnace oil(MW) power plant in Hub, Balochistan – was commissioned in March 1997 and almost immediately ran into problems with the Water and Power Development Authority (AMPDA), then responsible for the country`s energy infrastructure. In addition, PGAs help to resolve volatility issues, as electricity is purchased at pre-agreed prices for pre-agreed periods. It is unclear what the traditional energy market will do in these uncertain global conditions, but a recovery in global prices is expected. The problem for Hubco is the same as it has always been: the company has always chosen the wrong fuel for power generation and has not taken advantage of its good years to plan the overhauls it desperately needs. And he has a habit of foolishly believing the Pakistani government`s most aberrant promises, regardless of the political sustainability of what the government has promised the company. What further complicates matters is that things are bad for Hubco, even as the broader power generation sector continues to emerge from the 2018-19 recession.

In the third quarter of calendar year 2019, power generation across Pakistan increased by 3.9 percent compared to the same period a year earlier, according to data from the National Electric Power Regulatory Authority (NEPRA). The second component of IPP tariffs is called capacity pricing: if the IPP`s power plant is available for generation, but the distribution company is not obliged or decides not to purchase electricity from the IPP, the distribution undertaking must pay the IPP a «capacity charge» to pay the costs of building the infrastructure and supplying the distribution undertaking. However, the company`s main strategy is to invest heavily in coal-fired power plants. The length (in years) of the proposed electricity acceptance contract. The buyer agrees to purchase electricity for the lifetime. Most projects offer similar options for run time….