ISLAMABAD: Amid efforts to address issues related to independent power producers (IPPs), Prime Minister Shehbaz Sharif’s administration has decided to treat state-run and privately-owned IPPs equally by making them operational on a take-and-pay mode, The News reported on Wednesday.
“We have decided to get the government out of the electric power business. The powerhouses owned by the government generating 52% of electricity would also be shifted to take-and-pay mode. The government would finance them only to make them operational,” said an official from the task force on power sector reforms.
This decision follows a report that warned four IPP owners of repercussions if they didn’t terminate their power purchase agreements (PPAs) voluntarily. The official elaborated that electricity would be purchased from government power plants based on take-and-pay mode, and payments would be made only for the electricity purchased. Return on Equity will also be paid on a take-and-pay basis.
The task force, constituted to look into IPP-related matters, will take two more months to finalize recommendations and actions to lower power tariffs and make the power sector financially and operationally viable. The government plans to pay off the loans of its plants and seek re-profiling of loans from banks, with discussions underway with the Chinese government to extend loan payment tenures from 10 to 20 years.
The government has also asked five IPPs to voluntarily terminate their PPAs, as it will not purchase electricity from them nor pay capacity payments. The official noted that while the contracts of these IPPs still have 3-10 years left, they have already profited significantly, and Pakistan cannot afford high power tariffs.
A forensic audit will be initiated for any IPP that does not terminate its contract, as there have been allegations of misreported losses. One IPP owner was accused of obtaining loans by pledging the plant’s assets, which is a breach of contract. The government aims to save Rs300 billion in capacity payments over the next 3-10 years, providing consumers with a relief of Rs0.60 per unit, equal to Rs60 billion in one year.
Seventeen more IPPs installed under 1994 and 2002 policies will switch to take-and-pay mode. The government will continue to purchase electricity from these IPPs until a private power market is established. Once established, these IPPs will be allowed to sell electricity under the Competitive Trading Bilateral Contract Market (CTBCM) regime.
Efforts are underway to establish the CTBCM within two years, allowing IPPs to sell electricity to their clients using wheeling charges, which need to be reduced to make the CTBCM functional. The Federal Board of Revenue (FBR) is also being urged to reduce revenue collection through electricity bills, which currently stands at Rs800 billion annually.
The task force is working to reduce tariffs of wind and solar power plants, with some solar plants charging Rs27 per unit and wind IPPs getting Rs40 per unit. Engagements with wind and solar IPPs will be undertaken to bring down their tariffs.
