According to News, the federal government’s negotiations with Independent Power Producers (IPPs) have progressed, with four IPPs (Atlas Power, Saba Power, Rousch Power, and Lalpir Power) agreeing to terminate agreements prematurely. Hubco is expected to follow soon.
- The government anticipates saving PKR325bn from these terminations over the next 3-10 years. It has agreed to pay past capacity dues but refuses to pay interest, as some IPPs accused the government of default.
- The termination is expected to save PKR0.65 per unit. Through these negotiations, debt restructuring, and a moratorium on payments to Chinese IPPs, consumers’ tariffs may be reduced by up to PKR 7 per unit.
- CPEC projects could reduce tariffs by PKR 3.5-3.75 per unit. Negotiations with power projects under the 2006 policy and reducing the return on equity (RoE) for public sector power projects could further decrease tariffs.
- The current capacity payment share is Rs 19-20 per unit, over 50% of the total electricity price (excluding taxes and surcharges), which makes up 35-40% of the total bill.
- The government is considering forcing wind power projects to reduce their tariffs.
- The high-capacity costs of public and private power plants remain a major concern, and there is no current plan for sector reform.
- Some IPP owners with other business interests have accepted revised agreements despite disputes over data accuracy.
- Several IPPs, including Attock Gen, Liberty Dharki, and Gul Ahmad, have voluntarily announced tariff reductions, while others are still evaluating.
- The generation cost is PKR 35 per unit, including a capacity payment of PKR18.39 per unit, which comprises over 50% of the generation cost. The loan component alone accounts for PKR12-13 per unit.
- The renegotiation of terms between the government and Independent Power Producers (IPPs) is expected to benefit local consumers. The government anticipates a reduction in the per-unit cost by PKR 7, which could also significantly slow the pace of inflation.
- On the other hand, this may discourage investment in the country, as investors’ trust is the foundation of investment. A long-term investment policy, coupled with strict implementation, could only attract investment from local and foreign investors.
Courtesy – AHCML Research