Pakistan State Oil (PSO) has agreed to waive late payment interest charges from five Independent Power Plants (IPPs), whose Power Purchase Agreements (PPAs) with the government have been terminated. The settlements were reached after extensive negotiations between the Power Division, a task force, and the IPPs involved, namely HUBCO, Lalpir, Saba Power, ROUSCH, and Atlas Power.
Under these settlements, PSO is set to receive a principal payment of Rs14.8bn from the Central Power Purchasing Agency (CPPA), which will offset the late payment interest previously accrued under the HUBCO PPA. A key part of this arrangement is the reversal of a previous deduction made under an arbitration award.
One of the most significant outcomes of these negotiations is the transfer of the ROUSCH power plant to the government by December 31, 2024. The plant, constructed under the Build Own Operate and Transfer (BOOT) model, will be handed over for a symbolic amount of one US dollar. This transfer aligns with the termination terms and the broader government strategy to restructure the power sector.
The settlements between the government and the IPPs come with several important stipulations. No capacity payments will be made to the IPPs beyond October 2024, and the government will not pay any termination compensation under the Implementation Agreements (IAs). The IPPs have agreed to waive interest on past late payments, and no payments will be made for expert determinations or arbitration awards in favor of the IPPs. This mutual waiver is a key component in avoiding prolonged legal disputes.
Each IPP involved has its own unique terms under the settlement. For example, HUBCO waived Rs17bn in interest claims under a previous arbitration award, and ROUSCH will receive Rs5.5bn for early termination of the Operation and Maintenance Expenses (OFME) period.
The settlements are expected to save the government significant sums. PSO’s payables to HUBCO will be settled by offsetting the accrued late payment interest under the PPA. In total, the government estimates savings of Rs411.16bn from the termination of these five IPPs.
The settlements are part of a larger plan by the government to restructure the power sector, reduce electricity costs, and improve economic stability. The prime minister praised the IPPs for their cooperation, stating that by avoiding capacity payments and focusing on incurred costs, the government will save about 70 paisa per unit of electricity.
The power minister further highlighted that the IPP settlements are part of a broader strategy that includes curbing electricity theft, recovering arrears, and reducing reliance on expensive imported fuels, all aimed at lowering electricity costs for consumers and fostering economic growth.
In the coming months, the government is expected to enter into similar negotiations with an additional 15-20 IPPs as part of the second phase of power sector reforms.
