The federal government of Pakistan has initiated steps to terminate agreements with six more Independent Power Producers (IPPs) with a cumulative generation capacity of 2,396 MW. These plants, mostly fueled by furnace oil, have high generation costs, ranging up to Rs 63 per unit. The move aims to save approximately Rs 300 billion by eliminating payments for Energy Purchase Price (EPP) and Capacity Payments, which collectively cost over Rs 60 billion annually. IPPs Targeted for Termination, Kot Addu Power Plant (KAPCO) Capacity 1,638 MW. Annual Payments Rs 22.17 billion. Built by WAPDA between 1985–1996 and later privatized. Kohinoor Energy Limited (KEL) Capacity 131.44 MW. Generation Cost Rs 47.72 per unit (Rs 36.03 EPP + Rs 11.69 Capacity Payment) Annual Payments Rs 9.911 billion Established Early 1990s. Liberty Power Tech Limited Capacity 200 MW, Generation Cost Rs 62.68 per unit (Rs 44.03 EPP + Rs 18.65 Capacity Payment) Annual Payments Rs 15.032 billion. Gul Ahmed Energy Limited Capacity 136 MW Established 1994. Attock Gen Limited Capacity 165 MW. Generation Cost Rs 51.35 per unit (Rs 36.28 EPP + Rs 15.07 Capacity Payment) Annual Payments Rs 10.609 billion. Tapal Energy Limited Capacity 126 MW Established 1997. Cost Savings Rs 300 billion in reduced payments. By minimizing capacity payments, electricity tariffs could decrease. The government has already terminated contracts with 13 other IPPs, signaling a broader shift in energy policy towards reducing reliance on older, inefficient, and costly power plants. The termination of contracts with the identified Independent Power Producers (IPPs) could have several consequences, both positive and negative, for Pakistan’s energy sector, economy, and stakeholders involved. The termination will save approximately Rs 300 billion by eliminating capacity and energy purchase payments. A significant reduction in payments to inefficient IPPs will help ease the energy sector’s circular debt crisis. Reduced payments to IPPs could lead to lower electricity tariffs, benefitting consumers and industries. The government may face legal claims or be required to pay compensation for early termination of contracts, potentially offsetting the expected financial savings. Future foreign and local investment in Pakistan’s power sector may be deterred if contract enforcement is perceived as weak or unstable. Termination of inefficient, high-cost IPPs will push the government to rely on more cost-effective and renewable energy sources. The decision could encourage transitioning to advanced, cleaner, and more efficient energy generation technologies. Removing 2,396 MW of capacity without sufficient replacement could lead to power shortages, especially during peak demand periods. The removal of these IPPs may increase reliance on imported energy or fuels, depending on the availability of alternative generation sources. The termination of agreements with costly Independent Power Producers (IPPs) can provide relief to people in the form of lower electricity rates, but the extent of the benefit depends on several factors. Consumers indirectly bear the cost of capacity payments in their electricity bills. These payments are made to IPPs even if they are not producing electricity, ensuring their availability. By terminating contracts with these IPPs, which account for Rs 60 billion annually in capacity payments, a significant portion of the fixed costs embedded in electricity tariffs can be reduced. Lower generation costs may result in reduced electricity bills, especially for middle- and low-income households already struggling with high tariffs. Lower tariffs could make industries more competitive, reduce production costs, and potentially stabilize prices of goods in the market. lower electricity rates are a likely outcome, offering much-needed financial relief to consumers. However, proper implementation and transparent mechanisms are essential to ensure that the benefits reach the public in a timely manner. To ensure the successful implementation of the decision to terminate contracts with high-cost Independent Power Producers (IPPs) and deliver meaningful relief to the public. Accelerate investments in solar, wind, and hydroelectric power to replace costly thermal plants. Enhance the efficiency of public-sector power plants and ensure maximum utilization of lower-cost resources like hydropower and LNG. Empower the National Electric Power Regulatory Authority (NEPRA) to ensure accountability, fairness, and transparency in tariff adjustments. Set up mechanisms for public scrutiny and audits to ensure that cost savings are passed on to consumers.
Amjad Rana
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