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How commercial power companies are wreaking havoc in developing countries | TRT World |
Independent Power Producers (IPPs) have become synonymous with trouble for close to a billion people in low- and middle-income countries.
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 LG 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.
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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.
"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.