The Pakistani government has temporarily halted payments to 18 Independent Power Producers (IPPs) with a total capacity of 4,267 MW. This suspension precedes negotiations aimed at transitioning their power purchase agreements (PPAs) from a “take-or-pay” model to a “take-and-pay” model. This measure is expected to be short-term, lasting until the Competitive Trading Bilateral Contract Market (CTBCM) is fully operational in two years.
The IPPs affected were established under the power generation policies of 1994 and 2002 and are now under review for contract renegotiation. While the government has not provided a detailed explanation for the payment suspension, sources indicate it may relate to settling outstanding dues with Chinese IPPs ahead of a visit from Chinese Premier Li Qiang, as well as finalizing payments to five IPPs with prematurely terminated contracts. Although insiders suggest the moratorium is temporary, the specific reasons remain unclear.
The government has previously assured the International Monetary Fund (IMF) that a new policy framework would be finalized by September 2024, a deadline that has now been missed. This framework aims to establish a new electricity wholesale market to enhance distribution efficiency and incentivize better management of distribution companies (Discos).
The transition is planned in phases to minimize the impact on consumers and the national budget. The government also aims to reduce capacity payments while clearing arrears, potentially through PPA renegotiation and extending bank loan durations.
The affected IPPs and their capacities include: Uch-I Power Limited (586 MW), Pakgen Power Limited (365 MW), Liberty Power Daharki Ltd (235 MW), Kohinoor Energy (131 MW), Fauji Kabirwala Power Company Limited (157 MW), Attock Gen Limited (165 MW), Engro Power Gen QadirPur Limited (227 MW), Foundation Power (Daharki) (185 MW), Halmore Power Generation Company (225 MW), Liberty Power Tech Limited (200 MW), Hubco Narowal Energy Tech Limited (220 MW), Nishat Chunian Power Limited (200 MW), Nishat Power Limited (200 MW), Orient Power Company (229 MW), Saif Power Limited (229 MW), Saphire Power Limited (225 MW), New Bong Hydel IPP (84 MW), and Uch-II Power Project (404 MW).
Several IPPs have reportedly agreed to renegotiate their contracts, recognizing the urgency of addressing the power sector crisis and aiming for mutually beneficial outcomes. At least one CEO has publicly confirmed their willingness to revise the contracts.
