Govt secures major win, four IPPs agree to early terminate power deals

ISLAMABAD: Pakistan’s federal government has made significant progress in its negotiations with Independent Power Producers (IPPs), with four major players Atlas Power, Saba Power, Rousch Power, and Lalpir Power, agreeing to early contract termination.

Hubco is also expected to follow suit, according to local media sources. This development is expected to bring significant relief to consumers, with Power Minister Sardar Awais Khan Leghari predicting a tariff reduction of up to Rs 7 per unit.

The Power Sector Task Force, comprising senior security personnel, legal experts, and representatives from various regulatory bodies, played a crucial role in persuading IPPs to renegotiate their agreements.

Initially, three IPPs: Hubco Power, Rousch Power, and Lalpir Power,  resisted the idea but eventually agreed to early termination.

However, a disagreement remains between Hubco and the government regarding a sum of Rs 1 billion. The government anticipates saving Rs 325 billion over the remaining lifespan of five IPPs (3-10 years).

While it has expressed readiness to pay outstanding capacity dues, it has not agreed to pay interest, citing accusations of contract breaches by some IPPs. The estimated savings from these terminations are Rs 0.65 per unit.

Additional relief measures are expected from CPEC projects, which could provide savings of Rs 3.5-3.75 per unit.

Further tariff reductions will come from lowering the Return on Equity (RoE) for public sector power projects and negotiations related to 2006 policy projects. Currently, capacity payments range from Rs 19-20 per unit, accounting for over 50% of the total electricity price.

Moreover, Prime Minister Shehbaz Sharif and senior Power Division officials are pushing to end revenue collection through electricity bills. This move is part of a broader effort to address issues in the power sector.

Rashid Mehmood Langrial, now Chairman of the Federal Board of Revenue, previously opposed using Distribution Companies (Discos) as tax collection agents during his tenure as Secretary of the Power Division. However, it’s unclear if his stance has changed since taking on his new role.

Independent Power Producers (IPPs) have expressed dissatisfaction with the pressure they faced during negotiations with junior officials from SECP, CPPA-G, and Nepra. Some IPP owners, with diverse business interests, have agreed to revised contracts despite discrepancies between provided figures and documented data.