18 IPPs Expected to Sign New Pacts in the Next Six Months

ISLAMABAD: On Tuesday, the government made it official that it had reached a deal with power plants that use bagasse to lower their rates. The government also said that it would take four to six months to change the terms of its power purchase agreements (PPAs) with 18 other independent power producers (IPPs) that were set up under the power policies of 1994 and 2002.

Last month, the federal government gave its approval for Power Minister Owais Khan Leghari to end PPAs with the five oldest IPPs early. This will save the country Rs70 billion (71 paise per unit) a year, or Rs411bn over the remaining term of their contracts.

Prime Minister’s Special Assistant Muhammad Ali, who is also on the task force to renegotiate with IPPs, told the Senate Standing Committee on Power that the five oldest IPPs would save the government about Rs60bn a year. Ali is also a part of the task force. The meeting of the committee was led by Senator Mohsin Aziz.

Reforms to Stabilize Power Sector, Five IPP Agreements Signed

Mr. Ali stated that the current conversations with IPPs are part of the measures aimed at stabilizing the power industry and boosting industrial and commercial activity. He said that the deals with five IPPs were made last month with the approval of the federal cabinet.

According to him, after the first round of negotiations, bagasse-based IPPs were able to delink their worldwide coal-based pricing from the US dollar.

They have recently switched to using the Pakistani rupee as their index instead of the USD. He said that an official outline of the changes had been sent to the federal cabinet so that they could approve them. The changes were made to IPPs that sugar mills set up on bagasse, which is leftover cane.

Regarding the committee, Mr. Ali said that bagasse-based power production had nothing to do with coal prices and that too in dollars. The new deals that sugar mills made with IPPs were now in line with how tariffs work in other countries.

He explained that this was a part of the government’s plan to diversify the economy away from its reliance on foreign-exchange-losing imported fuels and towards domestic sources of energy.

Government Targets IPP Profits Amid Growing Energy Burden

Mr. Ali explained that in 2019, the government reviewed IPP contracts and tariffs due to rapidly rising and unaffordable energy prices. Many IPPs were earning returns of over 27 to 30 percent, as the 1994 power policy provided upfront tariffs, and the 2002 policy offered equity-based returns linked to the exchange rate, even though the investments were made within the country.

The National Electric Power Regulatory Authority also couldn’t get their heat rate and efficiency tests to figure out tariffs because the IPPs got court orders to stop them.

Senator Mohsin Aziz was upset that sponsors got back the money that IPPs put into building power plants in about four years, but some coal-based plants were able to get their money back in just two.

In Pakistan, Mr. Ali said, these IPPs got returns of about 13 to 17 percent, which was twice as much as any other country. He said that, like other countries, the government should stay out of the power business and work on building up power markets.

He informed that the task force is presently engaged in the third stage of negotiations with the state-owned power plants and 18 independent power producers (IPPs) from 1994 to 2002. He stated, “The negotiations will be completed in the next three to six months.”

Mr. Aziz and other committee members praised how hard the task force worked to negotiate with IPPs and get them to save money. They said that this should now make things easier for most people.

During the meeting, Senator Aimal Wali Khan brought up a point about how Peshawar Electric Supply Company in Khyber Pakhtunkhwa includes IPP expenses in their electricity bills, even though no electricity is really generated by IPPs in the province.

The panel was told by Special Secretary Arshad Majeed Mohmand that the price of electricity was set by the federal government based on different energy sources and that the price was the same all over the country.

Each province should reap the benefits of its own natural resources, according to the committee.