The Pakistan government’s battle with independent power producers (IPPs) has escalated after a high court order was issued in Lahore, reducing the tariffs of the Hub Power Co (Hubco) and blocking its repatriation of funds, Reuters reports.

The Lahore High Court issued an interim order which directed the Water and Power Development Authority (WAPDA) to pay only 1.50 rupees/kWh to Hubco; its agreed rate was 3.17 rupees/kWh. It also issued an order preventing the company sending remittances abroad. Both orders were passed following the petition of a Pakistani citizen, who accused Hubco of overcharging WAPDA.

Hubco has asked the courts to cancel the orders. It claims it cannot afford to sell power for 1.50 rupees/kWh when it effectively pays 1.46 rupees/kWh for fuel to generate the electricity. To comply would mean shutting down the plant, it claimed.

Hubco also pointed out that 76 per cent of the $1.5 billion plant was financed with international loans. If it could not repatriate its income it would be forced to default on its loan repayments. This would eventually lead to claims against the Pakistan government under guarantees and counter indemnities it issued.

The government has been trying to force 19 IPPs to reduce tariffs charged to WAPDA, which is in financial difficulties as a result of its contracts with the IPPs. Nine companies have bowed to these demands.

In order to put pressure on the IPPs, the government has threatened to launch investigations in to alleged corruption during the IPP contract negotiations. The contracts were signed under a former government.

The situation is likely to be exacerbated by the international sanctions applied to Pakistan following its detonation of nuclear devices.