Sapphire Electric Company Limited (SECL) has expressed concerns to Prime Minister Shehbaz Sharif over what it describes as the authorities’ coercive approach in seeking to terminate sovereign power contracts.
According to a news report published by BR, Sapphire Electric’s CEO Shahid Abdullah wrote a letter to the prime minister, challenging the claims of the government’s task force on energy that everything is being done with mutual consent.
However, Sapphire Electric has offered to terminate its sovereign contracts and waive capacity payments if the government accepts specific conditions.
Other independent power producers (IPPs) have echoed SECL’s stance, jointly addressing concerns to the prime minister. Adding to the scrutiny, Germany has raised objections to the recent agreements with Rousch Power, where German firm Siemens is a partner.
Currently, negotiations are underway to shift 18 IPPs to “take-and-pay” contracts from the existing “take-or-pay” model, with 12 IPPs reportedly resisting demands to return Rs 55 billion in alleged overpayments.
SECL CEO’s letter underscores broader challenges, arguing that blaming IPPs for rising consumer tariffs oversimplifies a complex issue. He noted that while the average generation tariff stands at Rs 27/kWh, the end consumer pays over Rs 60/kWh, largely due to taxes, transmission losses, and theft. Capacity payments to IPPs contribute Rs 17/kWh, with over half allocated to government-owned plants.
He also pointed to decreased power demand, a 40% hike in capacity payments due to exchange rate depreciation, and T&D inefficiencies driving costs higher.
Addressing the proposed “take-and-pay” model, Abdullah argued that such agreements in a single-buyer market are financially unsustainable. He explained that without a guaranteed buyer, power plants face severe financial strain, while restrictions prevent them from selling to alternative buyers, a scenario he claims would quickly bankrupt operators.
SECL has outlined conditions for contract termination, including full payment of outstanding dues, equal termination of capacity payment contracts across all plants, permission for IPPs to sell power to private buyers, and the continued supply of LNG on a competitive basis.
