Talks with IPPs help govt save Rs 1trn?

ISLAMABAD: The Minister for Power, Sardar Awais Khan Leghari, Saturday, claimed that a savings of Rs1 trillion had been achieved following the government’s “whole-of-government” approach in negotiations with Independent Power Producers (IPPs), with the support of Army Chief General Asim Munir.

Addressing a press conference on the nine-month performance of the power sector, the minister announced that revised agreements with 16 IPPs would be finalised in the coming days.

He explained that the government had terminated agreements with five IPPs, which would save Rs411 billion (Rs7 billion annually). Total savings from the settlement of the accords with 8 bagasse-based IPPs amounted to Rs238.224 billion (Rs8.826 billion per year).

Talks with Chinese IPPs initiated, says Leghari

Furthermore, the minister stated that the settlement of contracts with 16 additional IPPs would result in national savings of Rs481 billion. He also mentioned that discussions with Chinese IPPs, excluding those related to nuclear power plants, had begun. Re-profiling the debt of one nuclear power plant resulted in a savings of Rs1.5 per unit in tariffs.

In response to a question, the minister clarified that the buyback rate for solar net metering would be reduced, ensuring consumers’ investments are paid back within four years. “The net metering buyback rates will be reduced soon, as other paying consumers are currently carrying a financial burden of Rs150 billion,” he added, noting that the decline in demand was a major concern for the government.

When asked about privatisation plans, the minister revealed that three Distribution Companies (Discos) — IESCO, GEPCO, and FESCO— would be privatised by the end of 2025.

Addressing another query, the minister stated that recent amendments approved by the Nepra with a majority vote would be scrapped. Key reforms would be introduced in Nepra, as the Authority itself seeks them, with key decisions now being made by it. Nepra has exempted projects from the Nepra Act, particularly those executed on a government-to-government basis and those qualifying under the IGCEP 2021.

“We have begun analysing Nepra’s past decisions to uncover the facts. We are reviewing the regulatory framework of the power sector,” he continued.

The minister further stated that the government had submitted its review of KE’s tariff to Nepra, hoping that the Authority would consider the review, as Rs10 per unit increase would have far-reaching negative effects on consumers. “We have filed a review motion with Nepra on KE’s tariff determination for the next seven years. KE’s requested tariff was unfair. If the regulator had been just, Karachi’s consumers would have saved billions,” he said.

Sharing the results of reforms in the power sector, the minister revealed that the average price of electricity today stands at Rs44.04 per unit, compared to Rs48.70 in June 2023 (a reduction of Rs4.66 per unit). Industrial electricity prices have also dropped from Rs58.5 per unit in June 2023 to Rs47.17 per unit (a reduction of Rs11.33 per unit).

Regarding industrial growth incentives, the minister noted the elimination of Rs150 billion cross-subsidies for the industry, which would promote industrial growth, create job opportunities, and contribute to Pakistan’s economic stability.

Reforms in the transmission system are progressing, with NTDC being divided into three institutions; (i) National Grid Company of Pakistan (NGCP) to ensure efficient and reliable electricity transmission services; (ii) Energy Infrastructure Development and Management Company (EIDMC) to oversee development activities and project management through public-private partnerships; and (iii) Independent System and Market Operator (ISMO) to develop a competitive, transparent electricity market.

Additionally, the South-North transmission corridor is being developed through PPP, with a Battery Energy Storage System (BESS) of 1000MWh planned for installation in the South for frequency regulation. Further upgrades include the installation of reactive power compensation devices at NTDC substations.

The minister also revealed that Discos reforms are moving towards privatisation or concession models. Independent Boards of Directors have been appointed for Discos. He stated that debt restructuring is in progress to shift circular debt costs from electricity bills to national debt, which would help reduce electricity prices for consumers.

He mentioned that the Power Division will spend less than the allocated amount in the 2024-25 budget due to better performance by Discos compared to the previous year.

On market liberalisation, the minister announced the formation of the Independent System and Market Operator (ISMO), which would allow consumers to purchase electricity from multiple suppliers. He also revealed that the IGCEP 2024-34 would be finalised soon, and emphasised that out of the 17,000MW to be added in the next 10 years, only 87MW was based on the least-cost principle. A review of the IGCEP will ensure that energy is added to the system on a least-cost basis.

Regarding the solarisation of tube wells in Balochistan, the minister shared that 27,000 agricultural tube wells would be converted to solar power at a cost of Rs55 billion, with the federal government covering 70 per cent of the cost and the Balochistan government contributing the remaining 30 per cent.

He also discussed the Bijli Sahulat Package, which provides a special tariff of Rs 26.07 per unit to support households and industries across the country. Domestic savings would amount to Rs 26 per unit, commercial savings to Rs 22.71 per unit, and industrial savings to Rs 15.05 per unit.

Further, he mentioned that the government is working on the disposal of redundant generation assets (Gencos) through open auctions with live media coverage.

The minister emphasised that poor recovery rates in Discos contribute to Rs 250 billion in losses, and the circular debt burden of Rs 2.2 trillion raises electricity costs. Additionally, he stated that dollar-denominated debt increases with the depreciation of the rupee.

He also highlighted the transition to special tariffs for Electric Vehicles (EVs) to reduce petrol imports and promote environmental sustainability.

He also praised the Prime Minister Shehbaz Sharif as team leader, former Prime Minister Nawaz Sharif as head of the party for extending guidance to deal with the worst performing power. Discos Board performance was also appreciated.

He praised the Army Chief for his support to deal with the IPPs. “I have no hesitation to acknowledge, Army Chief, General Asim Munir, Lt General Muhammad Zafar Iqbal, National Coordinator, extended full support to renegotiate deals with the IPPs,” he continued.

Copyright Business Recorder, 2024