ISLAMABAD: The federal cabinet has approved revised agreements with 14 IPPs shifting the Return on Equity (RoE) from capacity-based calculations to payments based on actual electricity sold, with a minimum dispatch rate of 35%. This agreement comes after extensive negotiations, marking a significant reform in Pakistan’s power sector.
These revised agreements were presented before the federal cabinet on Tuesday for its nod.
The Task Force on Power Sector Reforms, led by Minister for Power Awais Leghari and co-chaired by Special Assistant to the Prime Minister on Power, Muhammad Ali, concluded talks with 14 IPPs. Ten of these were set up under the 2002 power policy, while the remaining four were part of the 1994 power policy. While agreements with most IPPs were reached, discussions are still ongoing with Halmore Power Generation Company.
A key figure in these successful negotiations was National Coordinator Lt. General Zafar Iqbal, whose leadership helped the government recover over Rs. 30 billion in excess payments from IPPs. An additional Rs. 80 billion was saved through the waiver of outstanding late payment interest. These renegotiations are expected to generate annual savings of Rs. 65 billion on capacity payments, resulting in a total of over Rs. 500 billion in savings over the remaining operational lifespan of these plants.
The government, however, has claimed that
cumulative saving from the revision will be Rs 802 billion and overall financial benefit to consumers will be of around Rs 950 billion. The annual benefit to consumers will be of Rs 137 billion per annum whereas savings to the government will be in the range of Rs 1.4 trillion. Talks with one IPP is at final stages whereas negotiations with other three are in progress.
The newly agreed financial model will dramatically reduce future capacity payments and recoup “excess profits” previously earned by the IPPs, particularly in relation to fuel costs and other expenditures. The renegotiations also lead to the elimination of the ‘take-or-pay’ structure, which guaranteed IPPs fixed payments, regardless of actual electricity generation. Instead, future RoE will be based on actual energy generation, with a minimum threshold to ensure operational sustainability.
The agreement also revised the Operations & Maintenance (O&M) cost model, basing future payments on actual expenses, in line with National Electric Power Regulatory Authority (NEPRA) regulations. Moreover, RoE payments will now be exclusively in rupees, replacing the previous USD-based system. The fixed RoE rate is set at 17%, based on an exchange rate of Rs. 168 per USD.
In a significant move, all outstanding interest payments were waived, and the Task Force recovered excess profits previously earned by the IPPs. Power Minister Sardar Awais Leghari highlighted that these efforts, including the renegotiations, have resulted in a cumulative financial benefit of Rs. 1.1 trillion, directly benefiting electricity consumers.
Leghari also extended his appreciation to Army Chief General Asim Munir and his team for their unwavering support throughout this process, saying that he has no hesitation to acknowledge this.
