In a significant development, five of the Independent Power Producers (IPPs) in Pakistan have agreed to scrap their Power Purchase Agreements (PPAs) with the government. After protracted negotiations and heavy governmental pressure, in an attempt to eliminate the capacity payments (in future contracts) expected to save Pakistani public exchequer Rs 139-150 billion annually. The IPPs involved are four plants installed under the said policy and one under the 2002 policy. Their payments to producers have long been a matter of contention, with the government believing that too many payments over the years were excessive.
The choice is part of a more comprehensive plan by the public to bring down the coast and lessen the burden on consumers. The IPPs with whom the guarantees have been reversed have since been axed, as these contracts have now shifted from the “take-or-pay” to a “take-and-pay” framework where they are only paid for electricity supplied. The government is also trying to find a mechanism to include these IPPs in a more competitive private power market in the future.
The IPPs agreed to forgo the contracts, in return for which they would be settled with arrears but not receive profits or capacity payments. The government expects to save Rs300 billion in 3-5 years, and this may mean a relief for consumers to the tune of Rs0. 60 per unit of electricity.
However, the government’s negotiations with discos on the outstanding old capacity payments amounting to Rs80-100bn ran unresolved.
The news is part of larger government efforts to rearrange the energy system, drive down prices, and promote innovation in wind and solar power.
