Government secures Rs1tr from IPP renegotiations

December 30, 2024 (MLN): Renegotiated agreements with Independent Power Producers (IPPs) have resulted in Rs1 trillion in financial adjustments, Power Minister Awais Leghari revealed during a media briefing. 

He attributed the savings to the "whole-of-government" approach and expressed gratitude to Army Chief General Asim Munir for his support.

Speaking at a press conference on the power sector's nine-month performance, the minister announced that revised agreements with 16 IPPs would be finalized in the coming days.

He explained that the government had terminated agreements with five IPPs, resulting in savings of Rs411 billion, or Rs7bn annually.

Additionally, the settlement of agreements with eight bagasse-based IPPs led to total savings of Rs238.224bn, which translates to Rs8.826bn per year.

Furthermore, the minister noted that settling contracts with 16 more IPPs would lead to national savings of Rs481bn.

He also mentioned that discussions with Chinese IPPs, excluding those related to nuclear power plants, had begun.

Reprofiling the debt of one nuclear power plant resulted in a savings of Rs1.5 per unit in tariffs.

Responding to a question, he stated that the solar net metering buyback rate will be lowered to ensure consumers recover their investments within four years. 

“The net metering buyback rates will be reduced soon, as other paying consumers are currently carrying a financial burden of Rs150 billion,” he added, noting that the decline in demand was a significant concern for the government.

When asked about privatization plans, the minister disclosed that three Distribution Companies (Discos) IESCO, GEPCO, and FESCO would be privatized by the end of 2025.

In response to another query, the minister stated that recent amendments approved by Nepra with a majority vote would be revoked.

Key reforms would be introduced in Nepra, as the Authority itself seeks them, with important decisions now being made by it.

Nepra has exempted projects from the Nepra Act, especially those carried out on a government-to-government basis and those qualifying under the IGCEP 2021.

“We have begun analysing Nepra’s past decisions to uncover the facts. We are reviewing the regulatory framework of the power sector,” he continued.

The minister further stated that the government had submitted its review of KE’s tariff to Nepra, expressing hope that the Authority would consider the review, as a Rs10 per unit increase would have significant negative effects on consumers.

“We have filed a review motion with Nepra on KE’s tariff determination for the next seven years.

KE’s requested tariff was unfair. If the regulator had been just, Karachi’s consumers would have saved billions,” he said.

Sharing the results of reforms in the power sector, the minister revealed that the average price of electricity is currently Rs44.04 per unit, down from Rs48.70 in June 2023, reflecting a reduction of Rs4.66 per unit.

Industrial electricity prices have also decreased from Rs58.5 per unit in June 2023 to Rs47.17 per unit, a reduction of Rs11.33 per unit.

The minister highlighted the removal of Rs150bn in cross-subsidies for the industry, aiming to boost industrial growth, create jobs, and strengthen Pakistan’s economic stability.

Reforms in the transmission system include the division of NTDC into three entities: National Grid Company of Pakistan (NGCP) for efficient transmission, Energy Infrastructure Development and Management Company (EIDMC) for project oversight, and Independent System and Market Operator (ISMO) for a competitive electricity market.

The South-North transmission corridor is being developed through PPP, with a 1000MWh Battery Energy Storage System (BESS) planned for frequency regulation and reactive power compensation devices to be installed at NTDC substations.

He stated that Discos are transitioning towards privatization or concession models, with independent boards appointed.

Debt restructuring efforts are focused on transferring circular debt costs to the national budget, which will help reduce electricity bills.

He also mentioned that the IGCEP 2024-34 would be finalized soon, with a focus on adding energy at the least cost.

The government is converting 27,000 agricultural tube wells in Balochistan to solar power, with costs shared between the federal and provincial governments.

The Bijli Sahulat Package provides discounted tariffs, offering savings for households, businesses, and industries.

Plans are in place to auction redundant generation assets and introduce special EV tariffs to promote sustainability.

The minister criticized Discos’ low recovery rates, which contribute to Rs250bn in losses, and pointed out that circular debt, now at Rs2.2tr, is driving up electricity costs.

He also acknowledged the support of Army Chief General Asim Munir and Lt General Muhammad Zafar Iqbal in renegotiating IPP deals.

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