ISLAMABAD: Federal Minister for Energy Awais Leghari has addressed the pressing issue of power purchase agreements (PPAs) with independent power producers (IPPs), which have significantly strained Pakistan’s national exchequer. In response to a series of critical messages by former caretaker minister Dr. Gohar Ejaz on X, Leghari emphasized that the government cannot unilaterally act against IPPs due to the guarantees provided in their contracts. However, he indicated a move towards privatizing loss-making power companies and institutions.
Leghari pointed out that poorly considered PPAs across various regimes have been the primary cause of Pakistan’s power crises. These agreements have led to exorbitant electricity bills, with taxes and capacity fees making up 70% of the costs for consumers. Analysts estimate that the country has suffered nearly Rs5,082 billion in losses over the past 15 years due to the failure to control circular debt, averaging an annual loss of Rs370 billion. Since July 2018, the power purchase price has surged by 95.82%, with these IPP contracts extending until around 2050.
The minister mentioned that the government is currently reviewing IPP contracts and planning to generate more electricity from cheaper sources. He asserted that IPPs not serving national interests would be allowed to exit. “The only way forward is to renegotiate,” Leghari said, adding that he had given instructions for such renegotiations.
Dr. Gohar Ejaz, who previously served as a federal minister for various portfolios, criticized the government’s handling of IPPs, claiming that they are annually paid Rs2 trillion unnecessarily. Ejaz argued that capacity payments to power plants, which lead to consumers paying Rs24 per unit instead of a feasible Rs8 per unit, are unjustifiable. He called for the cancellation of “Take or Pay” contracts and emphasized that electricity tariffs should be brought below Rs30 per unit.
Ejaz accused the Pakistan Muslim League-Nawaz (PML-N) government of labeling incompetence and mismanagement as reforms under International Monetary Fund (IMF) conditions. He noted that IPPs had utilized less than 50% of their 23,400MW generation capacity over the past two years, with shutdown and partially operational plants incurring additional costs of nearly Rs1 trillion.
Leghari, in response, highlighted efforts to address discrepancies in power distribution companies (DISCOs) and streamline cash flows with IPPs. He stressed the importance of maximizing the effective use of current generation capacity and remained hopeful about correcting the course under Prime Minister Shehbaz Sharif’s leadership.
Experts suggest that Pakistan must invest in renewable energy sources such as hydroelectric, solar, and wind power to diversify its energy mix. Additionally, implementing energy-efficient technologies, including smart grids and metering systems, can reduce energy waste and transmission losses, improving governance, cost, and infrastructure.
Given the critical situation, it is imperative to review or renegotiate IPP Power Purchase Agreements to prevent further economic strain on Pakistan.
I am an accomplished graduate of Strategic Studies, driven by a fervent dedication to comprehending global affairs and devising impactful strategies. Equipped with a comprehensive skill set encompassing research, critical thinking, and persuasive communication, I possess a distinctive viewpoint and an unwavering commitment to fostering inclusive decision-making processes. As a versatile individual, I excel in collaborating with diverse groups in various settings, leveraging my strong interpersonal abilities to adapt seamlessly to new environments and surmount any challenges that arise. With a passion for contributing to strategic initiatives, I am eager to leverage my expertise and drive to effect positive change within the field.
