ISLAMABAD: Negotiations on the “Forced Revision” of Power Purchase Agreements (PPAs) between the government’s Task Force and Independent Power Producers (IPPs) have entered a critical stage. However, it remains uncertain how much relief these revisions will bring to citizens burdened by high electricity bills.
The venue in Rawalpindi, where these intense negotiations are taking place, has become a source of anxiety for IPP owners, who are reluctantly considering the conditions outlined in a two-page document they must sign to avoid severe repercussions. Once finalized, the revised agreements will be presented to the federal cabinet for approval.
A major concern for the government is the enormous capacity payment, which exceeds Rs 2 trillion and continues to grow annually, alongside higher electricity tariffs and uncontrolled circular debt, now around Rs 2.5 trillion. Reforms in the energy sector have been minimal due to the political constraints faced by successive governments.
The legal teams from both sides, who met this week, hold differing views on the proposed short document. This document aims to compel IPPs to accept the Task Force’s calculations and forgo international arbitration.
IPPs are negotiating with officials from organizations whose previous leadership approved various terms and tariffs under different governments. IPPs established their plants under policies dating back to pre-1994, based on mutually beneficial terms and tariffs.
Currently, five IPPs—Hubco, Atlas Power, Rousch Power, Saba Power, and Lalpir Power Limited—are targeted by the Task Force, which estimates savings of Rs 325 billion over the remaining lifespan of these projects through the premature termination of their PPAs.
Sources indicate that IPPs are hesitant to trust Muhammad Ali, Special Assistant to the Prime Minister and Co-Chair of the Task Force on power sector reforms, 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.
Despite this skepticism, a divide exists among IPPs regarding the revised agreements. Some have shown a willingness to sign the new document, while others may have already done so. “We cannot ignore the crisis in the power sector and have agreed, in the national interest, to negotiate a fair and transparent agreement,” said the CEO of one IPP. Meanwhile, leaders of other companies remain silent on the ongoing discussions.
The immediate financial impact of this initiative may be minimal, but it sends a negative signal to potential investors at a time when the government is eager to attract new investments. This environment may also hinder efforts to privatize Discos, which are costing the national exchequer Rs 600 billion.
According to an official, the cumulative impact of the current negotiations will be Rs 2 per unit, while IPPs estimate it at Rs 1.32 per unit. The financial implications of reduced returns on equity for public sector power plants, treatment of IPPs established under the Power Generation Policy of 2002, and the re-profiling of debts of Chinese IPPs are still being assessed by the committees.
A central question being debated in various forums is whether IPP owners are “criminals or messiahs.” They established power plants at a time when the country faced severe electricity shortages and industries were shutting down.
“The government is coercing IPPs into accepting the revised agreements, some of which have been altered. While many are reluctant, they feel pressured to comply to avoid consequences,” said an insider. They argue that the Task Force’s experts lack sufficient understanding of the agreements and their validity.
Reports suggest that IPP owners were asked to bring their legal experts to negotiate with the Task Force’s legal team, but significant differences have emerged between the two parties.
“Whether establishing an IPP is a crime under national or international law, or whether it is akin to performing Hajj to fulfill the needs of the country, is a crucial question being discussed,” said another insider involved in the negotiations.
However, officials are of the view that they have found glaring mismatch in the financial balance sheets of IPPs, in addition on other wrongdoings.
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