ISLAMABAD: The government is set to begin meetings next week with executives from 18 Independent Power Producers (IPPs) established under the 1994 and 2002 Power Generation Policies to discuss the conversion of their contracts from the ‘take or pay’ to ‘take and pay’ model. This shift aims to reduce the financial burden on the national exchequer and align with ongoing power sector reforms, sources informed Business Recorder.
The government claims it has already saved Rs 411 billion by terminating Power Purchase Agreements (PPAs) of five IPPs. While the cabinet approved the termination and settlement agreements on October 10, 2024, final signatures are still pending.
The IPPs targeted for the conversion have conducted internal assessments of the financial impacts and are preparing for discussions with the Task Force led by the Minister for Power. However, other key personnel are reportedly steering the negotiations.
Some of the IPPs’ PPAs will not expire for over 15 years, and the transition to the new model is expected to proceed through mutual consultations. The negotiations could result in an estimated short-term tariff relief of Rs 8-10 per unit, with specific reductions stemming from various factors such as re-profiling, waivers on electricity duty, and adjustments to sales and income taxes.
Prominent IPPs impacted include Engro Powergen, Foundation Power Company Daharki, and Uch-II Power, among others. Power Minister Sardar Awais Ahmad Khan Leghari noted that reductions in the Return on Equity (RoE) for government-owned power plants could further lower tariffs by Rs 1.50 per unit.
Prime Minister Shehbaz Sharif, in announcing the termination of five IPPs’ contracts, praised the collective efforts of the government and its allies, including the input of Chief of Army Staff General Asim Munir, and described this as a positive step toward the country’s economic progress.
Story by Mushtaq Ghumman
