Govt to save PKR 411 billion from terminating contracts with IPPs: Pakistan minister

Pakistan is set to save PKR 411 billion as a result of terminating contracts with five Independent Power Producers (IPPs) that were based on a take-or-pay model, resulting in huge capacity charges and high electricity tariffs. This was stated by Minister for Energy Sardar Awais Ahmed Khan Leghari at a press conference in Islamabad on Thursday.

The termination of contracts would reduce the country's total capacity by 2,400 megawatts.

The government wants to make the electricity prices affordable for consumers and is taking several tangible measures to cut the electricity tariff by PKR 8-10 per unit, Leghari added.

The government expects to cut the tariff by approximately PKR3.5 per unit by revising agreements with local IPPs, PKR3.75 per unit by revising agreements with Chinese IPPs, PKR0.75 per unit from reducing different duties and taxes, PKR0.72 per unit from the closure of the five IPPs, and PKR0.16 per unit by removing the TV fee being charged in the bills, he elaborated.

He said that all pending dues of the five IPPs — amounting to PKR 71 billion — will be cleared. However, they will not get any interest on late payments, or fine for the early termination of contracts.

Revision of 'take-or-pay contracts'

The government will also review the performance and cost of generation of all power plants, whether they are owned by government or private companies. “We have initiated the process by starting negotiations for re-profiling debt of Chinese power plants established under the China-Pakistan Economic Corridor,” the minister said.

He added that the government wants to bring IPPs established under the 2002 power policy to ‘take and pay’ from the existing clause of ‘take or pay’ in their contracts. This means that the government would only pay the IPPs for the electricity they contributed to the grid instead of their total capacity.

Regarding the conversion of imported coal power plants to local coal, the minister said that it would take four to five years and help slash the tariff by around PKR2-2.5 per unit.

Independent Market Operator System

The minister also announced the setting up of the Independent Market Operator System in the power sector. The full-fledged institution, which would be fully operational in January 2025, would not only promote competition but boost the entire power sector to new heights.

He said the National Transmission and Despatch Company was also being fully transformed, and the Central Power Purchasing Agency would also have its own role in the sector.

To boost electricity consumption instead of gas in the winter season, a comprehensive program is being devised, Leghari informed. Consumers would get a relief of PKR20-30 per unit on additional consumption, he added.

The minister claimed that losses have been reduced by all power distribution companies during the last three months, except Hyderabad Electric Supply Company, Sukkur Electric Supply Company, and Quetta Electric Supply Company.