How commercial power companies are wreaking havoc in developing countries

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Independent Power Producers (IPPs) have become synonymous with trouble for close to a billion people in low- and middle-income countries.

Former Ghana President John Mahama's government faced severe backlash over the AMERI IPP deal.

“IPPs are in business to make profits and pay debts,” says Kingsley Osei, a lawyer who studies legal contracts for infrastructure projects like power plants. 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 ‘’ clause — a contractual obligation that’s draining the budgets of several developing countries.

Across the Atlantic, US President Ronald Reagan had come to power. Like Thatcher, he was against a bigger government and believed a free market could take care of itself. The World Bank proposed an “unbundling” of the power sector. Unbundling meant separating the generation, transmission and distribution parts of the electricity supply chain and selling them off in parts.

Robert Ichord, the former deputy assistant secretary of the US Department of Energy, says energy market’s liberalisation eased pressure off the public sector, which haemorrhages money due to corruption and political interference. Foreign investors ask for a higher rate of return when they put money in developing countries, which they see as riskier destinations for their investments, says Harvard Business School’s Louis T. Wells, who is co-author of a seminal book on IPPs, ‘Making Foreign Investment Safe.’TRT World

Alstom was one of the world’s largest manufacturers of nuclear power plants. It was also a market leader in boilers, a key component of coal-fired power plants. After spending more than a year in prison, he was released in a plea bargain, which he later wrote in his book ‘American Trap’ was a ruse to bully the French firm to sell its power business to GE.His story offers a rare insight into the inner workings of power plant equipment suppliers and engineering firms.

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. Many Indonesians grew up listening to stories about how former strongman Suharto and his relatives made billions of dollars with power projects like Paiton-1 in the 1990s. But PLN still managed to sign contracts with new IPPs for 35,000 MW from 2015 onwards.

Zambia currently owes more than $17 billion to multiple foreign creditors, which include investment funds like BlackRock and bilateral creditors like China. What many people don’t know is that one of the reasons behind Zambia's high debt burden is IPPs: more specifically, it owes $1.7 billion to only four IPPs.

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How independent power companies are wreaking havoc in developing countriesIndependent Power Producers (IPPs) have become synonymous with trouble for close to a billion people in low- and middle-income countries.
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