Govt considers shutting down IPPs to cut power tariffs

ISLAMABAD: The federal government is exploring various strategies to lower electricity tariffs, acknowledging the severe financial challenges facing the power sector. Among the proposals under consideration is the closure of domestic Independent Power Producers (IPPs) in both the public and private sectors.

Sources indicate that the government is actively working on multiple approaches to rationalize electricity rates, which include significant cuts to development budgets at both federal and provincial levels. These measures are aimed at creating fiscal space to address the power sector's ongoing financial woes.

One of the key strategies involves targeting non-CPEC (China-Pakistan Economic Corridor) IPPs for capacity charge payments through various financial instruments. This move is seen as part of the broader effort to ease the fiscal burden on the government.

However, the power rationalization plan has not yet received approval from the International Monetary Fund (IMF), which is a critical stakeholder in Pakistan’s economic reforms. Additionally, there is internal resistance within the government, with several key officials expressing doubts about the feasibility of the proposed measures. They are concerned that these strategies may not provide a lasting solution to the structural issues plaguing the loss-making power sector.

High-level sources have revealed that the government aims to generate significant fiscal space by cutting back on the Public Sector Development Programme (PSDP) at the federal level, along with the Annual Development Plans (ADPs) of provincial governments. These cuts are seen as necessary steps to fund the proposed initiatives aimed at reducing electricity tariffs.