Government to Summon IPP Heads Over Contract Revisions to Save Costs

The government is preparing to summon the heads of 18 independent power producers (IPPs) established under the 1994 and 2002 power generation policies, aiming to renegotiate their operational contracts. The plan is to transition from the current “take or pay” model to a “take and pay” model, a move expected to help reduce electricity costs, according to sources cited by Business Recorder.

This follows the cabinet’s recent approval to terminate power purchase agreements (PPAs) with five IPPs, resulting in claimed savings of Rs411 billion for the national exchequer. Although the final settlement was approved on October 10, 2024, the official documents have yet to be finalized.

The IPPs being targeted for conversion are already conducting internal reviews of how the changes may affect their financials. They are preparing for discussions with a task force led by Power Minister Sardar Awais Ahmad Khan Leghari, though reports suggest other influential figures may be involved behind the scenes.

Some of the PPAs in question have expiry dates extending beyond 15 years. Short-term tariff reductions from these negotiations are expected to fall between Rs8 and Rs10 per unit, with the financial impact from different plants projected to be between Rs3 and Rs3.50 per unit.

Further reductions could come from re-profiling agreements, which could cut Rs3.75 per unit, and waivers on provincial electricity duties, potentially reducing costs by Rs0.65 per unit. Additional savings are anticipated from reductions in PTV fees (Rs0.16 per unit), as well as relief from lowered sales and income taxes.

Minister Leghari highlighted that adjustments to the Return on Equity and profits from government-owned power plants could contribute savings of up to Rs1.50 per unit. Similarly, IPPs established under the 2002 power policy are projected to see a financial impact of Rs1.50 per unit.