The Independent Power Producers (IPPs) have urgently requested a meeting with all stakeholders. In a strong reaction to the government’s management of private sector power generators, ten IPPs established under the Generation Policy 2002 have reached out to Prime Minister Shehbaz Sharif, outlining conditions for terminating their sovereign contracts. This decision comes as frustration grows over claims that capacity payments to IPPs have made consumer tariffs unaffordable.
In a joint letter to the Prime Minister, the IPPs—including Pakgen Power, Nishat Power, Nishat Chunian, Sapphire, Hubco Narowal, Kohinoor Energy, Liberty FSD, Halmore, Laraib, and Orient Power—highlighted ongoing discussions aimed at renegotiating their Power Purchase Agreements (PPAs) from a “take or pay” model to a “take and pay” structure.
Muhammad Ali, the Special Assistant to the Prime Minister on Power, confirmed that negotiations with the 2002 Policy IPPs would begin on Monday.
While the IPPs acknowledged the high consumer tariff, they argued that attributing the primary cause solely to capacity payments is misleading. They presented several key points to support their position:
- The average generation tariff is Rs 27/kWh, whereas the average consumer tariff exceeds Rs 60/kWh, largely due to significant taxes, transmission and distribution costs, as well as losses and theft.
- Capacity payments for all IPPs amount to Rs 17/kWh of the generation tariff, with over half allocated to government-owned IPPs.
- Power demand has dropped by more than 22% in the past two years, resulting in a PKR 5/kWh increase in capacity tariffs.
- The exchange rate has significantly devalued over the last three years, leading to an over 40% increase in capacity payments.
Former Prime Minister Shahid Khaqan Abbasi recently remarked that it is the weak economy, not the IPPs, that has harmed the sector.
Sources indicate that the Task Force on Power Reforms, led by Minister for Power Sardar Awais Khan Leghari, aims to terminate “take or pay” contracts with the 2002 Policy IPPs and replace them with “take and pay” agreements. However, the IPPs argue that this proposal is financially unviable and could drive them into bankruptcy, as it would require them to cover fixed costs without a guaranteed purchase agreement from the government.
The IPPs asserted that the current approach is discriminatory, especially given that the government has recently issued a new tariff indexed to the US dollar with a 14% return, which still includes a “take or pay” mechanism.
In their letter, the IPPs outlined specific conditions for terminating their contracts, including:
- Payment of all past due amounts at the time of termination.
- Cancellation of all “take or pay” contracts to eliminate capacity payments.
- Permission to sell their power to private buyers while using the existing transmission and distribution system.
- Continued supply of LNG from SNGPL to IPPs that rely on this fuel until private importation is permitted.
- The IPPs cautioned that forced renegotiations of sovereign power contracts could significantly harm the privatization process and erode investor confidence. They emphasized that any substantial reduction in consumer tariffs would necessitate increased power sales, major reforms in the transmission and distribution system, and a decrease in the heavy tax burden.
- To address these concerns, the IPPs have urgently requested a meeting with all stakeholders to reevaluate the government’s strategy and discuss their proposed actions.
