ISLAMABAD: Muhammad Ali, Special Assistant to Prime Minister (SAPM) on Power, has announced significant progress in renegotiating agreements with Independent Power Producers (IPPs) to address longstanding inefficiencies in Pakistan’s power sector. Speaking on Geo News’ special talk show “Aakhri Mauqa: Pakistan Kay Liye Kar Dalo”, Ali disclosed that 15 out of 18 IPPs established under the 1994 and 2002 power policies have agreed to revised terms, transitioning to a “take-and-pay” system. This move is projected to save the government a staggering Rs800 billion over the remaining duration of these contracts.
Under the new agreements, IPPs will no longer receive capacity payments but will be compensated annually for operation and maintenance costs, ensuring their continued functionality in the system. Payments will now be tied to the actual electricity dispatched, significantly reducing the financial burden on consumers.
Financial Impact on Consumers
The SAPM highlighted that Pakistan’s power consumers currently pay Rs18.39 per unit as capacity charges, with private sector IPPs charging an even higher Rs29.70 per unit. The revised agreements aim to lower electricity tariffs by Re0.70 to Rs1 per unit, translating to annual savings of Rs70-100 billion for consumers. He emphasized that even a 50-paisa reduction per unit could save the public Rs50 billion annually.
Audit and Transparency Issues
Ali criticized the lack of transparency and accountability in the power sector. He noted that several IPPs had resisted audits by the National Electric Power Regulatory Authority (NEPRA), including a proposed heat rate audit to assess their efficiency. “If there was nothing to hide, why oppose the audits?” he questioned, urging IPPs to agree to forensic examinations to restore public trust.
He also accused some IPPs of making excessive profits of 60-80% through questionable practices such as overcharging for fuel and operations. Some companies allegedly diverted profits to invest in other sectors, including real estate and the stock market, in clear violation of their contractual obligations.
Government Savings and Circular Debt
The SAPM revealed that the government has already saved Rs400 billion by terminating contracts with underperforming IPPs and an additional Rs200 billion by renegotiating terms with bagasse-based power plants. He assured that the circular debt in the power sector would be resolved soon, followed by similar efforts in the oil and gas sectors.
Institutional Reforms and Capacity Building
Ali stressed the need for reforms within regulatory bodies like NEPRA, NTDC (National Transmission & Despatch Company), and PPIB (Private Power Infrastructure Board), blaming flawed decisions over the last decade for the sector’s financial woes. He also called for institutional capacity building to prevent mismanagement and corruption.
Addressing Surplus Capacity and High Tariffs
Pakistan’s installed power generation capacity stands at 43,000 MW, while peak demand reaches only 25,000 MW during summer and drops to 10,000 MW in winter. This surplus has resulted in exorbitant capacity payments, exacerbating the financial strain on consumers. Ali proposed measures such as debt profiling of power plants with Chinese lenders, potentially reducing costs by Rs3-4 per unit.
He also criticized the high taxes embedded in electricity tariffs, which contribute Rs800 billion annually to government revenue. The SAPM recommended reducing these taxes to Rs300 billion and recovering the shortfall through alternative means.
Private Sector and Market Liberalization
Former CPEC chairman Khalid Mansoor called for an open power market, suggesting the rationalization of wheeling charges and the establishment of a competitive market. He noted that many IPPs were not opposed to audits and urged the government to resolve pending stay orders obstructing accountability processes.
Economist Ammar Habib Khan suggested auctioning surplus electricity to industries at competitive prices to stimulate demand. He also highlighted the macroeconomic challenges, such as the steep depreciation of the Pakistani rupee, which have worsened capacity payment issues.
Stakeholder Perspectives
During the talk show, other stakeholders, including former caretaker minister Gohar Ejaz and CEO of Lucky Electric Power Rohail Muhammad, shared their insights. Ejaz pointed out the unaffordable tariffs for industries and agriculture, urging reforms to reduce electricity costs.
Rohail Muhammad emphasized the need for policy consistency, noting that while CPEC projects had adhered to agreed terms, a lack of demand had inflated capacity payment shares in tariffs.
Conclusion
The SAPM reassured that negotiations with IPPs were proceeding amicably and dismissed claims of coercion. He expressed optimism that reforms would not deter future investments in the power sector, citing interest from private investors in acquiring assets such as the Uch power plant and electricity distribution companies.
Ali concluded by emphasizing the government’s commitment to resolving systemic inefficiencies and creating a sustainable power sector that prioritizes consumer welfare and economic stability.
Story by Khalid Mustafa
