Deals with five IPPs nixed to save money, cut tariffs

ISLAMABAD: Prime Minister Shehbaz Sharif on Thursday announced the termination of power purchase agreements (PPAs) with five Independent Power Plants (IPPS) with mutual agreements with these IPPs. This would provide Rs60 billion annual relief to electricity consumers and a total Rs411 billion benefit to the national exchequer.

“These IPPs have voluntarily and happily agreed to terminate their power purchase agreements while preferring national interests to their own,” he said while speaking at the federal cabinet meeting. The premier said that the IPPs whose PPAs have been terminated are Rousch Power, Saba Power, Lalipir, Hubco and Atlas Power.

“The take-and-pay process of these IPPs has been terminated immediately and only their arrears will be paid without any financial cost and interest,” he said.

Shehbaz said that besides Rs60 billion annual relief to consumers, the government would also save Rs411 billion, which would have been paid till the completion of agreements with these IPPs in coming years. “The challenges in the form of IPPs are big ones. People rightly view that the power plants had earned a lot of profit,” Shehbaz said.

He said that the task force established on reviewing agreements with IPPs and other officials concerned did hard work while President Asif Ali Zardari and Bilawal Bhutto Zardari discussed the same issue with him. “The army chief also took special interest and put in personal efforts for the purpose, and I feel very encouraged,” he said, adding that it was achieved due to collective efforts and nothing could be achieved without it.

He also praised the efforts of cabinet members and said that the meeting was called on a short notice. “This is the beginning of journey for prosperity of the country and its people, and it is the first drop of rain,” he said, adding that a similar effort was also made in 2018 and 2019 but it did not work.

Shehbaz said the incumbent government was the representative of the people and it was fully aware of their problems and would continue doing whatever was possible to provide relief to them. “By the Grace of Almighty Allah, we have brought the inflation rate from 32 percent to a single digit,” he added.

He pointed out that PMLN President Nawaz Sharif also asked him time and again to reduce the tariffs of electricity in the country.

The prime minister said the country’s economy was moving towards stability and on Wednesday news had been received that the country had received $8.8 billion record remittances from overseas Pakistanis during the last quarter. “This is confidence showed by hard working overseas Pakistanis. The country’s economy is moving forward but still we have to travel a long distance while facing many challenges,” he said.

Shehbaz said the government also faced big challenges in the last seven months while people faced problems in the shape of price hike and increase in policy rate. “I am also thankful to all Pakistanis that they sacrificed a lot,” he said.

The prime minister said that the government also spared Rs50 billion to provide relief to the electricity consumers using up to 200 units. Similarly, the Punjab chief minister also allocated more than Rs50 billion to give relief to consumers using electricity over 200 to 500 units.

Meanwhile, in a media briefing following a federal cabinet decision on the IPP contracts, Minister for Power Division Awais Ahmed Khan Leghari announced the government was also working on plans that aim to reduce power tariffs by up to Rs10 per unit in the near future.

Leghari explained that the five IPPs, with a combined capacity of 2,400 megawatts (MW), were identified as part of the government’s strategy to make the electricity prices more affordable. He stated that the termination agreements are expected to yield annual savings of Rs70 billion, contributing significantly to the overall relief for consumers.

“We are taking several tangible measures to cut electricity tariffs by Rs8 to Rs10 per unit in the short term,” Leghari said, expressing optimism that this target could be achieved within a few months. He clarified that Rs71 billion dues of the five IPPs will be settled and there would be no equity payments, interest on late payments or fines for the early termination of their contracts.

The minister further announced that the government was working on a winter package to increase electricity consumption, offering consumers a discount of Rs20 to 30 per unit on additional usage. In an effort to further reform the power sector, Leghari mentioned that the prime minister has established a National Task Force dedicated to this initiative. As part of these reforms, the government plans to review the performance and generation costs of all the power plants, both public and private.

“We have initiated negotiations to re-profile the debt of Chinese power plants established under the China Pakistan Economic Corridor,” he noted. The minister, however, mentioned the Karachi incident, stating that had it not occurred, several memorandums of understanding would have been signed with China in the next couple of weeks.

Leghari also addressed the existing contracts of IPPs established under the 2002 power policy, indicating a shift from the current ‘take-or-pay’ clause to a more favorable ‘take-and-pay’ model. However, he emphasized that each case will be reviewed individually.

The minister projected further tariff reductions of approximately Rs3.5 per unit from remaining local IPPs, Rs3.75 from Chinese IPPs, Rs0.75 from duties and taxes, Rs0.72 from the closure of the five IPPs and Rs0.16 from the TV fee currently charged in electricity bills.

He also discussed the long-term plan to convert imported coal power plants to local coal, which he estimated would take four to five years and could reduce tariffs by an additional Rs2 to Rs2.5 per unit.

Additionally, the minister revealed plans to establish an Independent Market Operator System in the power sector, with a fully operational institution expected by January 2025. This move aims to foster competition and elevate the power sector’s performance.

He also reported that power distribution companies (Discos) have collectively reduced losses over the past three months, with the exception of Hesco, Sepco and Qesco, where losses have increased. Furthermore, he mentioned plans to open charging stations for electric vehicles and batteries as part of a broader strategy to support sustainable energy solutions.

With these comprehensive measures, the government aims to not only alleviate the financial burden on consumers but also promote increased electricity consumption and enhance the overall efficiency of Pakistan’s power sector.

According to Geo, the minister also thanked Chief of Army Staff 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 the 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).