Electricity tariff cut on the horizon as contracts ended with five IPPs

ISLAMABAD: The federal government is aiming to cut the electricity tariff by up to Rs10 after the termination of power purchase agreement with five independent power producers (IPPs) which it believes would save the national exchequer Rs411 billion.

“We will reduce the power tariff after mutual consultation with power generation companies,” Energy Minister Awais Leghari said while addressing a press conference after federal cabinet’s meeting in Islamabad.

Prime Minister Shehbaz Sharif, earlier in the day, announced that five IPPs have "voluntarily" agreed to cancel their power purchase agreements with the federal government, a move that will save the government Rs60 billion annually. 

The high cost of electricity has become a contentious political issue, with opposition parties leveraging public dissatisfaction to criticise the incumbent government’s handling of the energy sector and agreements with the IPPs.

The burden of high electricity tariffs falls disproportionately on the middle and lower-income segments of society, fueling public outrage and eroding trust in the government’s ability to manage the economy.

Analysts noted that a successful renegotiation with both local and international IPPs would drastically reduce tariffs, boost industrial competitiveness, and increase public trust in the government's ability to effectively manage the economy.

Giving details regarding the development, the energy minister said that the government had surveyed to ascertain which plants are not needed anymore.

“We initiated talks with five IPPs and studied the power agreements,” he said, adding that they concluded with mutual consultation.

“The decision would provide Rs60 billion annual relief to the electricity consumers and cumulatively save Rs411 billion to the national exchequer,” Leghari said.

Hoping to achieve the target of reducing the power tariff by Rs 8-10 per unit in a few months, the minister said the government was undertaking various measures to ease the burden on the masses.

He also thanked Chief of Army Staff (COAS) General Asim Munir for his assistance in re-negotiating the agreements. “We will now look forward to working with remaining IPPs,” he added.

The energy minister also mentioned the establishment of an Independent System and Market Operator (ISMO), which he termed a “major win” for his ministry. “After its operationalisation, consumers will be able to buy electricity like shares,” he said.

A day earlier, the Cabinet Committee on Energy (CCoE) approved the establishment of ISMO, an independent multiplayer market, for power generation and purchase to create a competitive environment and gradually end the government's role as a sole purchaser of electricity.

“We are creating an independent environment for the sale and purchase of electricity,” Leghari said, adding that the power purchasers will not be dependent only on the Central Power Purchasing Agency (CPPA-G).

Furthermore, he said the government was considering introducing a programme, which he said would increase the usage of electricity in winter. “In this regard, a decision will be made after taking all stakeholders into confidence,” he added.