ISLAMABAD: A special meeting of the Federal Cabinet is expected to approve the premature termination of Power Purchase Agreements (PPAs) for five thermal Independent Power Producers (IPPs) totaling 2,400 MW.
Sources informed NewzShewz that the Task Force on Power Sector Reforms, chaired by Federal Minister for Power Sardar Awais Ahmad Khan Leghari and co-chaired by Special Assistant to the Prime Minister on Power Muhammad Ali, has been in extensive negotiations with the five IPPs established under the pre-1994, 1994, and 2002 Power Generation Policies. The Task Force includes Lt. General Zafar Iqbal, National Coordinator, the Commander of Air Defence, Additional Secretary Muhammad Zakria, the Chairman of NEPRA, the CEO of the Central Power Purchasing Agency (CPPA-G), and a representative of the PPIB.
The deals initialed by both sides are considered mutually beneficial. The government is expected to pay approximately Rs 72 billion to the five IPPs: Hubco Power Company Limited (1,292 MW), AES Lalpir (362 MW), Rousch Power Limited (450 MW), Saba Power Company (134 MW), and Atlas Power (225 MW). According to the revised agreements, the government must make this payment immediately.
The termination of the PPAs is effective from October 1, 2024, the date both parties initialed the mutually agreed document. Muhammad Ali, the SAPM on Power and a key figure in the negotiations, stated that the government has successfully arranged the voluntary termination of the five IPPs, which had remaining “take-or-pay” contract terms of 2.5 to 10 years, leading to potential savings of over Rs 300 billion in future capacity payments.
Additionally, the companies have waived Rs 40 billion in Late Payment Surcharges (LPS), and the agreements were negotiated without any termination settlement costs, marking a significant step toward fiscal prudence.
Timeline of Negotiations and Payments:
- August 2019: Power sector committee formed by the GoP to address sector issues; detailed report submitted in March 2020.
- June 2020: Negotiation Committee formed; MoUs signed with 47 IPPs for revised contract terms.
- September 2020: Implementation Committee established to convert signed MoUs into agreements; Muhammad Ali was not involved in this process.
- January 2021: Master Agreements/PPA amendments initialed, with commitments for past payments.
- February 2021: ECC and CCoE approved the revised agreements on February 8; Cabinet ratified them on February 11.
- June 2021: 40% of the first installment paid (1/3 cash, 1/3 PIBs, 1/3 GIS).
- December 2021: 60% of the second installment paid (1/3 cash, 1/3 PIBs, 1/3 GIS).
The government anticipates a reduction in tariffs by Rs 6-7 per unit; however, the impact of the premature termination of the five IPPs’ PPAs is estimated at Rs 0.60-0.65 per unit over their remaining life. Additionally, debt reprofiling and a moratorium for 10 Chinese IPPs and their transmission lines are expected to further reduce tariffs by Rs 3.50 per unit. A reduction in the Return on Equity (RoE) for public sector power plants is also projected to lower tariffs by Rs 2-3 per unit.
Official sources indicate that the government plans to convert the PPAs of 18 IPPs to a take-and-pay mode, contingent on the establishment of an electricity market in the country within two years.
