ISLAMABAD: In a landmark move aimed at easing the financial burden on electricity consumers, the federal cabinet has approved the termination of power purchase agreements with five Independent Power Producers (IPPs).
This decision is a key component of the government’s broader electricity sector reforms, designed to reduce tariffs and ensure a more affordable and efficient energy system for the public.
The IPPs affected by the termination include The Hub Power Company Limited (HUBCO), Lalpir Power Limited, Saba Power, Rousch Power, and Atlas Power.
The government expects this decision will save electricity consumers approximately Rs 60 billion annually while it will cut the costs for the national treasury by Rs 411 billion.
The government’s plan for Rousch Power, one of the five IPPs, involves transitioning the company from a Build, Own, Operate, and Transfer (BOOT) agreement to government ownership. Following this transfer, Rousch Power will be privatized through the Privatization Commission.
The remaining four IPPs will stay under private ownership, with the government no longer responsible for payments after the contract termination.
Addressing the cabinet, Prime Minister Shehbaz Sharif expressed optimism about the future of the country’s economy. “By the grace of Almighty Allah, the country’s economy is rapidly moving towards stability,” he stated.
“We have fulfilled the promise made in our party’s manifesto to work tirelessly for public relief.”
He added that the termination of these five IPP contracts marks the beginning of a larger process, with revisions to other power sector agreements expected to follow, ultimately leading to reduced electricity tariffs.
In acknowledging the hardships faced by the public, particularly in light of soaring inflation, Shehbaz Sharif said, “The time has come to ease the burdens faced by the people.”
He highlighted that inflation, which had previously climbed to over 30%, has now decreased to 6.9%, offering significant relief to households across Pakistan.
The termination of contracts with the five IPPs comes with the voluntary agreement of the companies involved. The Prime Minister expressed his gratitude to the owners of these IPPs, stating that “these IPP owners have played a key role, much like the first raindrops in a downpour, in initiating relief for the public.”
Prime Minister Shehbaz Sharif also lauded the task force established to oversee power sector reforms, along with the federal cabinet members, for their commitment to addressing the needs of the electricity sector.
He further acknowledged the government’s ongoing efforts to provide relief on electricity bills, specifically during the summer months when energy demand typically peaks.
Meanwhile, Dr. Gohar Ijaz, former caretaker federal minister for interior, commerce, industries, investment, and overseas Pakistanis, took to Twitter to discuss the broader implications of these reforms.
He highlighted that the efforts to resolve issues with 107 IPPs contracts are entering their final phase. These contracts, he said, have benefited only a small number of families but have placed an enormous financial burden on the country.
“These IPPs have hardly produced any electricity for years but have been receiving Rs 100 billion annually in capacity charges, paid by all electricity consumers — domestic, commercial, industrial, and agricultural,” Dr. Ijaz noted.
He emphasized that the ultimate goal is to shift all IPP contracts to a “take-and-pay” model, where payments are only made for electricity that is actually produced and supplied to consumers. This shift could result in savings of Rs. 1 trillion, or Rs. 9.70 per unit, for Pakistani consumers.
Furthermore, Dr. Ijaz explained that the reductions in other charges, such as distribution costs and taxes, could lower electricity prices by an additional Rs. 4 per unit. In total, this could bring the overall savings to Rs. 14 per unit for consumers nationwide.
Dr. Ijaz also revealed that the task force had conducted a thorough investigation and analysis of the IPP contracts, with negotiations currently underway. He expressed hope that the reforms would soon bring much-needed tariff relief to domestic consumers, commercial industries, and farmers across Pakistan.
It is pertinent to mention that the termination of these IPP contracts represents a crucial step towards ensuring transparency, reducing circular debt, and creating a more sustainable energy sector in Pakistan.
