Maps
Magazine

TRADE & ECONOMY

Ten Power Producers Seek Contract Termination from PM Over Pricing Discontent
Discontent brews among IPPs as they approach Prime Minister Shahbaz Sharif with a proposal to end contracts, citing high electricity prices and a flawed strategy.
ND
by News Desk
2024-10-28
Ten Power Producers Seek Contract Termination from PM Over Pricing Discontent

Ten Independent Power Producers (IPPs) established under the Generation Policy of 2002 have reached out to Prime Minister Shahbaz Sharif. They are proposing terms to terminate their contracts with the government, highlighting concerns over high electricity prices and the complexities of the current pricing strategy.

 

These ten IPPs, including notable entities such as Pakgun Power, Nishat Power, Sapphire, and Habco Narowal, communicated their concerns in a letter to the Prime Minister. They pointed out that over the past year, both government agencies and media outlets have attributed the rising electricity costs to the payments made to private IPPs, a narrative they argue oversimplifies the underlying issues.

 

The letter was sent ahead of scheduled negotiations, as Special Assistant to the Prime Minister Muhammad Ali announced that discussions with the IPPs would commence on Monday. The IPPs acknowledge that electricity prices are indeed high, but contend that the emphasis on subsidy payments as the primary culprit is misplaced.

 

Sources indicate that the Task Force on Power Reforms, led by Power Minister Sardar Owais Khan Leghari, is advocating for a shift from existing "take or pay" contracts to new "take and pay" contracts. Under this proposed model, generators would be obligated to bear significant fixed costs to keep their power plants operational, with no guarantee of the government purchasing their electricity. Additionally, these generators would be restricted from selling their power to private buyers, a condition the IPPs argue is unprecedented and financially untenable.

 

The IPPs have stated that eliminating capacity payments for the 2002 IPPs, which collectively contribute 2400 MW to the grid, would only lead to a marginal reduction of Rs 0.5 per kWh in the generation tariff. In their proposal for contract termination, the IPPs have outlined several key conditions:

 

Payment of Past Dues: All outstanding payments must be settled either in cash or through Treasury Bills (T-Bills) upon contract termination.

 

Termination of Contracts: All existing “take or pay” contracts, including those related to government-owned projects and the China Pakistan Economic Corridor (CPEC), should be annulled to eliminate capacity payments.

 

Selling Electricity to Private Buyers: IPPs should be permitted to sell their electricity to private buyers using the current transmission and distribution infrastructure at a fair price, relieving the government of its obligation to purchase electricity.

 

Continued Supply of LNG: The state-owned SNGPL must ensure a continuous supply of LNG to the IPPs utilizing it, unless provisions are made for private imports, as the current LNG supply is controlled by the government.

 

As negotiations unfold, the outcome will be pivotal for the future of IPPs and the overall electricity pricing landscape in Pakistan.
Tagged:

PakistanEnergy

IPPs

PowerReforms

ElectricityPricing
Share News: