ISLAMABAD: The federal cabinet has approved revised agreements with eight bagasse-based Independent Power Producers (IPPs), a move expected to save Rs238 billion over their operational lifespan.
Under the new terms, the IPPs will reduce the working capital tariff component by 50% and adjust the return on equity (ROE) and return on equity during construction (ROEDC) to 17% annually, calculated at a rupee-dollar exchange rate of 168, with no future dollar indexation. These changes will take effect from October 31, 2024.
To address energy shortfalls, the agreements stipulate that debt servicing arising from plant underperformance (capacity factor below 45%) will be offset by surplus output (capacity factor above 45%) over five-year periods. Additionally, tariff components for operations, maintenance, and other costs will be indexed to 31% of the Consumer Price Index or less.
The agreements resolve long-standing disputes over the fuel cost component of tariffs. Initially linked to imported coal prices, the National Electric Power Regulatory Authority (NEPRA) later pegged the component to domestic bagasse rates, a decision challenged in court. Following negotiations, the reference bagasse price was set at Rs4,500 per ton from October 2021, with a 5% annual indexation and adjustments applied retroactively.
These revised agreements, supported by detailed calculations presented to the cabinet, also include authorizations for CPPA-G to execute the settlements and file revised tariff petitions with NEPRA.
This initiative is part of broader efforts to optimize energy costs and enhance the sustainability of Pakistan’s power sector.
