KARACHI: Government has ended power purchase contracts with five private companies, including one with the country’s largest utility that should have been in place until 2027, to cut costs, officials said on Thursday.
The news confirms comment from Power Minister Awais Leghari to Reuters last month that the government was re-negotiating deals with independent power producers to lower electricity tariffs as households and businesses struggle to manage soaring energy costs.
“We studied these agreements and we decided what plants we need and what plants we don’t need,” Leghari told a news conference in Islamabad on Thursday, adding the termination of the take or pay agreements will save the nation nearly 411 billion rupees ($1.48 billion) in the coming years.
Govt set to announce revised deals with IPPs
Take or pay is referred to as capacity payments in Pakistan where the government has to pay private companies irrespective of how much of the power they generate is transferred to its grid.
Negotiations have also begun with other power producers to revise their contracts, Leghari said, adding people would soon see the impact in their monthly bills.
“Our aim is to bring the tariff down,” he said.
The need to revisit the deals was an issue in talks for a critical staff-level pact in July with the International Monetary Fund (IMF) for a $7-billion bailout.
Earlier on Thursday Prime Minister Shehbaz Sharif said Pakistan has agreed with five independent power producers to revisit purchase contracts. He said that would save the country 60 billion rupees a year.
Pakistan’s biggest private utility, Hub Power Company Ltd , also said the company agreed to prematurely end a contract with the government to buy power from a southwestern generation project.
In a note to the Pakistan Stock Exchange, it said the government had agreed to meet its commitments up to Oct. 1, instead of an initial date of March 2027, in an action taken “in the greater national interest”.
A decade ago, Pakistan approved dozens of private projects by independent power producers (IPPs), financed mostly by foreign lenders, to tackle chronic shortages.
But the deals, featuring incentives, such as high guaranteed returns and commitments to pay even for unused power, resulted in excess capacity after a sustained economic crisis reduced consumption.
Short of funds, the government has built those fixed costs and capacity payments into consumer bills, sparking protests by domestic users and industry bodies.
Pakistan has begun talks on re-profiling power sector debt owed to China and structural reforms, but progress has been slow. It has also said it will stop power sector subsidies. —Reuters
NNI adds: What could be described as a big step towards reduction in the power tariff, the federal cabinet has approved the termination of contracts with five Independent Power Producers (IPPs).
According to details, Prime Minister Shehbaz Sharif, while chairing the federal cabinet meeting in Islamabad on Thursday, expressed his resolve to provide relief to consumers in their electricity bills.
The step would save electricity consumers Rs60 billion annually and also save Rs411 billion for the national exchequer.
Speaking on the occasion, the prime minister said that by the grace of The Almighty Allah, the country’s economy was stabilizing. “In the first phase, we are terminating contracts with five IPPs namely HUBCO, LALPIR, Saba Power, Rousch Power and Atlas Power,” he informed the meeting.
PM Shehbaz further said that the electricity prices would be reduced gradually by revisiting the agreements signed with other IPPs in the power sector. “PML-N President and my mentor Nawaz Sharif has always stressed the need for the provision of relief to the masses by slashing the power tariff.”
He went on to say that acting upon the advice of his mentor, he worked 24/7 to ensure that electricity prices were reduced so that the people could heave a sigh of relief. “People have sacrificed a lot during this period. It is high time that relief was provided to them now.” The prime minister said that previously the inflation rate was over 30 per cent. “But now it has come down to 6.9 per cent which has brought comfort in the people’s lives,” he said, and added, “Hence the target which we had to achieve in 2025, was achieved in 2024.”
He also praised the IPP’s owners for preferring the country’s interests to their personal interests and agreed to terminate their contracts with the government voluntarily. “Thus they played a vital role in the provision of relief to the masses,” he said, and added, “The entire cabinet, including me, are thankful to them for that.”
PM Shehbaz said that despite a difficult situation, the federal and the Punjab governments reduced the power tariff so that the consumers could heave a sigh of relief. He said he would keep each and every promise he had made to the people.
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