ISLAMABAD: The government’s Energy Task Force is expecting annual savings of Rs 200-300 billion from new deals with Independent Power Producers (IPPs), Government Power Plants (GPPs), and wind and solar projects. These savings are expected to translate into a reduction of Rs 2-3 per unit for consumers.
Special Assistant to the Prime Minister on Power and co-chair of the Energy Task Force, Muhammad Ali, along with National Coordinator Lt. General Muhammad Zafar Iqbal, is leading negotiations with the IPPs.
In a briefing to the Senate Standing Committee on Power, chaired by Senator Mohsin Aziz, Mr. Ali outlined the government’s plan to reduce electricity tariffs, which have become unaffordable for consumers across all categories.
“We expect savings of Rs 200-300 billion annually as a result of the current negotiations with IPPs, GPPs, and wind and solar projects. This is expected to reduce tariffs by about Rs 2-3 per unit,” Mr. Ali stated.
He informed the committee that the Energy Task Force was established three months ago to renegotiate power plant agreements. The process of revising these contracts is expected to take another three months to complete.
“We anticipate that the entire process will be finalized within the next three months,” Ali added.
He dismissed concerns about mistreatment of IPP representatives in Rawalpindi, emphasizing that negotiations are being conducted in a constructive and positive atmosphere. However, he acknowledged that there are differences in the figures presented by both sides.
Ali revealed that contracts with five IPPs have been terminated prematurely, with expected savings of over Rs 400 billion. He also mentioned that agreements with eight bagasse-based IPPs have been finalized, delinking their tariffs from international coal prices and the dollar. A summary of these agreements has been submitted to the federal cabinet for approval.
Furthermore, he stated that negotiations with 18 IPPs established under the 1994 and 2002 power policies are ongoing. Once these negotiations are concluded, the next phase will involve government-owned power plants, followed by wind and solar IPPs.
A key issue, according to Ali, is the excess profit of Rs 55 billion accumulated by the IPPs of 2002, which they are resisting returning to the government. The government is pressing for the return of this amount, pointing out that the nation has already paid for these projects through debt repayments.
Ali also informed the Standing Committee that overpayments made to the IPPs in the past are currently being recovered. He asserted that the tariff granted to IPPs through the cost-plus mechanism was their rightful entitlement. However, any excess profits beyond the agreed return must be returned to consumers. This position is also being followed by the Task Force.
He highlighted that the heat rates of these plants had not been properly assessed, which was a major flaw in the system. The National Electric Power Regulatory Authority (NEPRA) was supposed to conduct efficiency audits of the IPPs, but a court stay had prevented this from happening.
According to Ali, the efficiency of these plants exceeded the benchmark used to determine their tariff. Higher efficiency results in less fuel consumption, which means the IPPs made extra profits in this regard. Additionally, the operations and maintenance (O&M) practices of these plants, along with failure to meet inventory requirements, have been flagged as issues.
He further explained that during the Imran Khan government, it was agreed that NEPRA would address the issue of excess profits made by IPPs. However, the subsequent cabinet decision shifted the approach, allowing for international arbitration instead.
“We want to convert these plants from the ‘take-or-pay’ model to a ‘take-and-pay’ model. This way, the plants will remain operational, and investors will still receive a fair return on their excessive profits. We are also advocating for the establishment of an electricity market in Pakistan, as the current single-buyer model (the government) is insufficient. We believe electricity should be treated as a commodity,” Ali concluded.
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