Pakistan greenlights settlement with 8 independent power producers to save national kitty $853 million

This file photo, taken on January 24, 2023, shows a power transmission tower in Karachi. (REUTERS/File)

• In October, PM Sharif said his government was terminating purchase agreements with five IPPs to rein in electricity tariffs
• A decade ago, Pakistan approved dozens of mostly foreign-financed private projects by IPPs to tackle chronic shortages

ISLAMABAD: The federal cabinet has approved settlement agreements with eight bagasse-based Independent Power Producers (IPPs) with the aim to reduce electricity prices and save the national exchequer $853 million, state broadcaster Radio Pakistan reported on Tuesday.
A decade ago, Pakistan approved dozens of private projects by IPPs, financed mostly by foreign lenders, to tackle chronic power shortages. But the deals, featuring incentives such as high guaranteed returns and commitments to pay even for unused power, ultimately resulted in excess capacity after a sustained economic crisis slashed consumption.
Short of funds, subsequent Pakistani governments have built those fixed costs and capacity payments into consumer bills, sparking protests by domestic users and industry bodies.
In October, Prime Minister Shehbaz Sharif said his government was terminating purchase agreements with five IPPs to rein in electricity tariffs as households and businesses buckled under soaring energy costs.
The latest approval for settlements with eight bagasse-based IPPS was given during a federal cabinet meeting chaired by Sharif. The country’s Central Power Purchasing Agency will now approach the National Electric Power Regulatory Authority for a reduction in the electricity tariff generated from these power plants, state media said. 
“The federal cabinet on the recommendation of the Ministry of Energy and Power Division has accorded approval to settlement agreements with eight IPPs which run on bagasse,” Radio Pakistan said, referring to a fibrous residue left over after sugarcane is crushed to extract juice. It is often used as a biofuel for electricity generation. 
“After the agreements, the price of electricity for common consumers will be reduced, resulting in the benefit of $853 million (Rs238 billion) to the national exchequer.”
The eight power plants include the JDW Unit-I and Unit-II, RYK Mills, Chiniot Power, Hamza Sugar, Al-Mueez Industries, Thal Industries and Chinar Industries, the report added.
In October, when Sharif decided to terminate purchase agreements with five IPPs, he said tariffs would be reduced gradually by revising agreements with other IPPs in the electricity sector.
“This will benefit electricity consumers by Rs60 billion ($215 million) annually. As a result, the national treasury will save Rs411 billion ($1.4 billion),” Sharif said at that time. 
The need to revisit power deals was a key issue in talks for a critical staff-level pact in July with the International Monetary Fund (IMF) for a $7-billion bailout. The program was approved in September. 
Pakistan has also begun talks on reprofiling power sector debt owed to China and structural reforms, but progress has been slow. It has also vowed to stop power sector subsidies.