• The end of a 71-paise-per-unit reduction in the average electricity price • Additional cuts of Rs8-10 per unit are anticipated as part of the overall policy measures • The government is considering a winter package to encourage additional usage with discounts of Rs20-30 per unit • Plans to open charging stations for electric vehicles within the next few weeks The government claimed future savings of Rs411 billion and an impact of approximately 71 paise per unit on the average electricity tariff, which currently stands at approximately Rs36 per unit, excluding taxes and duties, when it made the announcement on Thursday regarding the premature termination of power purchase agreements (PPAs) with five of the oldest independent power producers (IPPs).
The announcement was made by Prime Minister Shehbaz Sharif during a meeting of the federal cabinet. Power Minister Awais Ahmed Khan Leghari then held a press conference. The priest promised to keep looking into contracts with other IPPs and state-possessed power plants to additionally diminish duties by Rs8-10 for every unit.
Mr. Leghari stated that the cabinet has approved the termination of the contracts, which will now be presented to the National Electric Power Regulatory Authority (Nepra) for regulatory approval and de-licensing after receiving procedural approval from the Private Power and Infrastructure Board (PPIB) and the Central Power Purchasing Agency (CPPA).
He stated that “mutual agreement” was used to terminate the contracts, with the IPP owners prioritizing the national interest over personal gain. He expressed gratitude to the army chief, institutions of the government, including power companies and regulators, and PM’s special assistant Muhammad Ali for “making the impossible possible.”
In addition to the nation’s largest private utility, the 1,292 MW Hub Power Company Ltd, which was established prior to that, the five IPPs that agreed to terminate their contracts included Saba, Lalpir, Atlas, and Rousch. These IPPs were established under the power policy of 1994. With a combined generation capacity of 2,463 MW, these plants were scheduled to expire within two to three years.
The minister stated that as part of a winter package designed to increase electricity consumption, the government is also preparing to offer discounted rates, ranging from Rs20 to Rs30 per unit for additional usage.
He stated that the government is implementing a number of concrete measures to reduce the electricity tariff by Rs8-10 per unit in the near future. He stated that the prime minister established a National Task Force to implement power sector reforms. Five IPPs were identified during the initial phase, and negotiations were initiated.
He stated that the government is taking a number of measures to lower tariffs, one of which is the termination agreement with the five IPPs.
Mr. Leghari elaborated by stating that the agreements with these IPPs will result in annual savings of Rs70 billion that will be paid to them over the contract’s remaining term, totaling Rs411 billion. There will be no surcharges for late payments or penalties for early termination for the government to clear the Rs71 billion in IPP payables that remain unpaid.
The minister claimed that these terminations resulted in savings that were greater than those secured by the previous PTI government.
Additionally, he confirmed that the government is evaluating the costs and performance of all public and private power plants. He continued, “We have started the process by beginning negotiations to reprofile the debt of Chinese power plants established under the CPEC portfolio.” Several Memorandums of Understanding will be signed with China within the next few weeks if the Karachi airport blast does not occur.
The minister said that the government also wanted to change the power policy of 2002 that established IPPs to “take and pay” from the “take or pay” clause in their contracts, but emphasized that the case of each IPP would be looked at separately.
Mr. Leghari pointed out that the government intends to reduce tariffs by Rs3.5 per unit through agreements with local IPPs, Rs3.75 per unit through the reprofiling of Chinese IPPs’ debt, Rs0.75 per unit through surcharges, and Rs0.72 per unit through the closure of the five IPPs. Additionally, the removal of the television fee that is currently included in electricity bills will result in a reduction of Rs0.16 per unit.
He stated that the transition from imported coal power plants to local coal would take three to five years and could reduce tariffs by approximately Rs3.60 per unit in response to a question.
The Independent System and Market Operator (ISMO) was also announced by the minister as the result of the merger of the CPPA and the National Power Control Centre (NPCC). Over the course of three to four years, the power industry will be transitioned to an operational exchange system akin to a stock exchange as a result of this merger. By January 2025, the ISMO is expected to be fully operational, which, according to Mr. Leghari, will increase power sector competition.
He stated that the entire National Transmission and Despatch Company (NTDC) was undergoing transformation as well.
The minister stated that the implementation of these measures would increase electricity consumption, boost business productivity and competitiveness, and support industrial productivity.
He stated that, with the exception of those in Hyderabad, Sukkur, and Quetta, all power distribution companies had reduced their losses in the first quarter of the current fiscal year. Additionally, preparations are being made to open electric vehicle charging stations in the coming weeks.
The minister stated that the winter package and other tariff reduction measures would be implemented once the International Monetary Fund and other lenders had joined. He stated that the government’s only option was to increase electricity demand, which could not be accomplished without lowering rates and would require addressing inefficiencies.
Tending to worries about the effect of agreement terminations on future privatizations, Mr Leghari dismissed the idea that financial backers would be hindered. He stated that future bidders would still find the investment returns appealing because Pakistan’s IPPs had earned some of the highest profits in the world.
The minister stated that as they were established under the build, own, and operate model, the ownership of four IPPs—Saba, Hubco, Atlas, and Lalpir—would remain with their owners. On the other hand, the build, own, operate, and transfer (BOOT) model-based Rousch will be taken over by the government and then privatized.
