Pakistan’s power producers agree to adopt hybrid take & pay model

Several Independent Power Producers (IPPs) and the Central Power Purchasing Agency (CPPA) have agreed to adopt the "Hybrid Take & Pay" model under an Amendment Agreement aimed at reducing consumer-end tariff and alleviate the burden on general public.

Seven IPPs, including Liberty Power, Narowal Energy, Nishat Chunian Power, Nishat Power, Engro Powergen, Saif Power, and Sapphire Electric, have filed a tariff adjustment application with the National Electric Power Regulatory Authority (NEPRA).

The proposed tariff adjustments aim to revise key components, such as the indexation mechanism for operation and maintenance (O&M) costs, working capital costs, and insurance components.

The new model replaces the "Take or Pay" framework and allows IPPs to receive 35% of the return on equity (ROE) and return on equity during construction (ROEDC) as a capacity payment, with the remainder tied to electricity generation exceeding 35% of the contract capacity.

The application stipulates that the revised tariff will become effective upon notification and the withdrawal of NEPRA’s proceedings against power producers for alleged abnormal profits. Applicants have also requested that past excess adjustments related to fuel and O&M costs be discarded.

The government has disbursed a total of PKR 53 billion to seven Independent Power Producers (IPPs) as part of revised agreements. The payments include PKR 5.272 billion to Liberty Power, PKR 9.680 billion to Narowal Energy, PKR 6.674 billion to Nishat Chunian, PKR 9.633 billion to Nishat Power, PKR 8.041 billion to Engro Powergen Qadirpur, PKR 6.490 billion to Saif Power, and PKR 7.050 billion to Sapphire Electric.

This development follows ongoing negotiations between the government and IPPs to reduce capacity payments and address financial challenges in the power sector. As part of these reforms, the government has already approved settlement agreements with 14 IPPs, including Liberty Power Tech Limited.

NEPRA is expected to review the application and issue its determination in the coming weeks. If approved, the revised tariff will take effect following the resolution of proceedings against Liberty Power Tech Limited.

Earlier, Federal Minister for Energy Awais Khan Leghari announced that the government anticipates a major tariff reduction, citing savings of PKR 1.4 trillion from revised IPP contracts.

He said the cost-cutting measures are expected to result in an annual saving of PKR 400 billion, which will be reflected in the upcoming tariff cut to be announced by Prime Minister Shehbaz Sharif.