Govt’s move to save consumers Rs60 billion annually and national exchequer Rs411 billion, says PM Shehbaz
In a major step towards providing relief to inflation-hit consumers, Prime Minister Shehbaz Sharif revealed that five independent power producers (IPPs) have “voluntarily” agreed to terminate their power purchase agreements (PPAs) with the federal government. The premier, addressing the cabinet, emphasized that this decision will help reduce consumer electricity bills by Rs60 billion annually, while also saving the national exchequer a substantial Rs411 billion.
Five IPPs End Power Purchase Agreements, Reducing Burden on Consumers
During a detailed cabinet meeting, PM Shehbaz Sharif expressed his gratitude towards the five IPPs—Hubco, Lalpir, Saba Power, Rousch Power, and Atlas Power—for their willingness to forego their existing contracts, which will directly benefit the nation. According to the premier, these power companies prioritized the country’s interest over their own by agreeing to end their contracts on a “voluntary” basis.
By ending their contracts under the take-or-pay arrangement, where the government is bound to pay even for unused power, these IPPs have made a significant contribution to lowering the burden on consumers who are struggling to pay rising energy costs amidst high inflation.
“This agreement with the IPPs marks a historic shift in the government’s strategy to reform the power sector. This voluntary termination will end the costly capacity payment charges that have inflated energy bills and placed a heavy burden on the public,” the Prime Minister stated.
Govt to Renegotiate More Power Deals to Cut Tariffs
The government’s decision to negotiate and revise agreements with IPPs comes after intense pressure from consumers, industrial bodies, and political circles, who have been demanding relief from skyrocketing electricity bills. Capacity payment charges—fees the government pays to power producers regardless of actual power usage—have been a major contributor to the increased cost of electricity.
Addressing the same, PM Shehbaz shared that the government plans to extend similar renegotiations with other IPPs in the near future, which would further reduce tariffs for consumers. This long-term strategy is expected to bring much-needed relief to the inflation-battered economy.
“The termination of these agreements with the five IPPs will not only save the consumers Rs60 billion annually but will also allow the government to save Rs411 billion. This fiscal space can be directed towards more critical areas of economic management and public welfare,” Shehbaz said, commending the IPPs for their cooperation in these unprecedented times.
Key Power Sector Reforms
The move follows a broader agenda by the government to reform the power sector and address the structural imbalances that have driven electricity prices beyond affordability for the average Pakistani household. The task force established to negotiate with the IPPs presented the details of the agreements during the cabinet meeting, and PM Shehbaz praised the effort of both the task force and the federal cabinet for their role in concluding the deal.
According to an official involved in the negotiations, the final legal documents are being prepared and will soon be signed by all five IPPs to formally end the contracts. The agreements involve a mix of ownership and operational arrangements. Rousch Power, one of the IPPs, was established under a build-own-operate-transfer (BOOT) agreement and will now be privatized by the Privatisation Commission after its ownership is transferred to the government.
For the remaining four IPPs—Hubco, Lalpir, Saba Power, and Atlas Power—the ownership will remain with the private sector, but the government will not be required to make any further payments once the contracts are terminated.
Hubco Announces Early Termination of Power Deal
In a parallel development, Hub Power Company Ltd. (Hubco), the country’s largest private utility, announced the early termination of its power purchase agreement with the Central Power Purchasing Agency (CPPAG). The deal, initially set to expire in 2027, will now conclude by October 1, 2024. This accelerated termination reflects the company’s commitment to supporting the government’s efforts to reduce the cost of electricity for consumers.
Hubco’s board approved the early termination, acknowledging that the current economic conditions demanded action in the “greater national interest.” This follows ongoing talks between the government and several IPPs to reprofile their deals, with the aim of reducing capacity payments that have become a heavy burden for the nation.
Power Sector Reform Key to IMF Talks
The need to renegotiate and revise agreements with IPPs has been a key issue in Pakistan’s broader discussions with the International Monetary Fund (IMF), as the country seeks to secure a $7 billion bailout to stabilize its economy. The IMF has insisted on reforms in the power sector, particularly the reduction of subsidies and renegotiation of power deals, as part of the broader structural adjustment program.
In addition to negotiating with local IPPs, Pakistan is also in talks with Chinese lenders regarding the re-profiling of power sector debts, although progress has been slow.
PM Shehbaz Highlights Economic Gains
PM Shehbaz Sharif also took the opportunity to highlight some of the recent economic gains made under his administration. He pointed out the record remittances of $8.8 billion received in the last quarter, a sign of confidence from overseas Pakistanis in the government’s policies. The prime minister was optimistic that this, coupled with ongoing power sector reforms, would provide much-needed fiscal space and economic stability for the country.
This decision by the IPPs to voluntarily terminate their contracts is seen as a critical step in Pakistan’s path to economic recovery and stability, providing immediate relief to consumers and easing the financial burden on the government.
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