ISLAMABAD: After extensive investigations and negotiations, four Independent Power Producers (IPPs) established under the Power Generation Policies of 1994 and 2002 have reportedly initialed a small document meant to revised Power Purchase Agreements (PPAs) with the government’s team.
The IPPs involved are 224 MW Atlas Power, 136 MW Saba Power, 450 Rousch Power, and AES 362 Lalpir Power, who have initialed the revised agreements with the understanding that some previously agreed-upon dues will be paid to them this time, ensuring they are not treated as in the past.
However, 1200 MW Hub Power Company (Hubco) has yet to initial the document due to a dispute regarding the agreed amount with the government. Hubco is expected to initial the agreement by Tuesday or Wednesday.
The Federal Cabinet will accord final approval of deals initialed with the IPPs of cumulative capacity of 24,00 MW which include schedule of payments of previous agreed between both parties ( Government and IPPs).
The Task Force on the Power Sector headed by Power Minister Sardar Awais Leghari , also including senior security officers, lawyers, and experts from SECP, PPIB, CPPA-G, and NEPRA, has played a key role in convincing the IPPs established under the pre-1994, 1994, and 2002 Power Generation Policies to opt for closure . Nonetheless, the IPPs believe that the government’s legal team lacks knowledge about the negotiation process and disregards the viewpoints of their senior legal teams. However, experts of Task Force are of the view that they have unearthed ” faulty things” in the balance sheets of those power projects, which compelled the IPPs to agree on scrapping of their PPAs premature.
The government anticipates saving over Rs 325 billion over the remaining lifespan of five IPPs (3 to 10 years). The government is willing to pay previous dues for the five IPPs but not interest, as some IPPs have accused the government of defaulting on agreements. Conversely, the government is also facing accusations of similar violations. The expected savings from termination will amount to Rs 0.65 per unit.
According to Power Minister Sardar Awais Khan Leghari, consumer tariffs will be reduced by up to Rs 7 per unit as a result of these negotiations, debt re-profiling, and a moratorium on debt payments to Chinese IPPs and transmission line projects. CPEC projects are expected to provide relief of Rs 3.5 to 3.75 per unit. Reductions in the Return on Equity (RoE) for public sector power projects and negotiations related to power projects from the 2006 policy will further lower tariffs. Currently, the share of capacity payments is Rs 19 to 20 per unit, accounting for over 50 percent of the total electricity price, excluding taxes, surcharges, and a TV fee of Rs 35 per consumer, which constitutes 35 to 40 percent of the total electricity bill. Suggestions are also under consideration to require wind power projects to revise their tariffs.
The former caretaker Minister for Commerce, who initiated discussions on the IPPs’ high profits and alleged wrongdoings, believes the government can save Rs 1 trillion through negotiations.
Prime Minister Shehbaz Sharif and senior officials in the Power Division have already expressed their views about eliminating revenue collection through electricity bills. The current Chairman of the Federal Board of Revenue (FBR), Rashid Mehmood Langrial, who previously opposed using distribution companies (Discos) as tax collecting agents while serving as Secretary of the Power Division, has not clarified whether he has changed his stance after assuming the chairmanship of the FBR.
The IPPs are dissatisfied with the pressure they faced during discussions, which included junior officials from SECP, CPPA-G, and NEPRA. A key issue remains the exorbitant capacity payments of power plants in both the public and private sectors.
Sources indicate that almost all power plant owners have been urged to voluntarily announce tariff reductions to set a precedent. Some, such as Attock Gen, Liberty Dharki, and Gul Ahmad, have already announced reductions, while others are evaluating potential changes after discussions with top officials in Islamabad.
However, IPPs are hesitant to trust Muhammad Ali, due to his past record. He previously negotiated with IPPs during the Imran Khan administration to revise agreements but failed to honor his commitments regarding payments.
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