ISLAMABAD - The federal government on Thursday announced the termination of the power purchase agreement with five Independent Power Producers (IPPs) which Prime Minister Shehbaz Sharif said it would provide Rs60 billion annual relief to the electricity consumers and cumulatively save Rs411 billion to the national exchequer.
Initially the government has ended power purchase contracts with five private companies, including one with the largest utility that should have been in place until 2027, according to officials.
The prime minister, in his remarks at the meeting of the federal cabinet he chaired, said the termination of agreements, signed between the Task Force on Power Sector Reforms and IPPs owners, was part of the efforts to reduce the burden of capacity payments being borne by the consumers and that it would also reduce the electricity prices.
“The owners of five IPPs agreed to terminate the contracts preferring the national interest to their own. This is the first raindrop. This will follow the rain to green the whole region,” he remarked and thanked his team members including the task force on power sector reforms, President Asif Ali Zardari and Chief of the Army Staff for their efforts and PML-N president Nawaz Sharif for constant push.
He told the cabinet members that the power tariff would be reduced after a gradual review of contracts with other IPPs.
Under the agreement, the IPPs whose contracts had been terminated including Rousch Power, Saba Power, LALPIR, HUBCO and Atlas Power, would be liable to receive their arrears sans mark-up.
It was told that the Rousch Power unit was established under the Build, Own and Operate (BOP) basis, so its ownership would be transferred to the government for its onward privatisation by the Privatisation Commission. The ownership of the rest four IPPs would remain with their respective owners and after the contract termination, the government would not be liable to pay any charges.
Expressing gratitude to the people who faced the inflation with patience, said the time had come to address their woes and mentioned the reduced inflation from 30% to 6.9% - a target achieved within seven months, far before the commitment for 2025.
He said the economy was improving fast and the government had made untiring efforts to fulfill its manifesto of public relief.
Prime Minister Shehbaz also mentioned the federal government’s Rs50 billion subsidy for power consumers using up to 200 units and the other announced by Punjab government to support those using 201 to 500 units during the summer. He lauded the expatriates for sending a record $8.8 billion foreign remittances during the previous fiscal quarter which was also the manifestation of their trust in the government policies.
Meanwhile, Federal Minister for Power Division Sardar Awais Leghari said that the termination of contracts with five Independent Power Producers (IPPs) will bring an overall savings of Rs 411 billion to the electricity consumers, and added that the government target is to slash tariff by up to Rs 10 per unit in short term.
The Minister for Power Division also announced that to increase the electricity consumption the government is working on winter package, where the consumers will get a discount of Rs 20 to 30 per unit on the additional consumption.
The Minister was briefing the media regarding the Federal Cabinet decision related to the termination of contracts with five IPPs, having combined capacity of 2400 MW. He said that the agreement would be materialized in next few days.
The IPPs to be shut down, in first phase, includes four RFO based power plants, and one gas based IPP, having a cumulative capacity of 2400 MW, the source said. The IPPs to be shut down included 1200 MW RFO based Hub Power Plant, gas based 450 MW Rousch (Pakistan) Power Limited (RPPL), RFO based 362MW AES Lalpir power limited, RFO based Atlas Power with capacity of of 224 MW and RFO based 136 MW Saba Power.
Laghari said that the government wants to make the electricity prices affordable for the consumers. The government is taking several tangible measures to cut the electricity tariff by Rs 8 to Rs 10 per unit, in the short term, he added.
Leghari said the prime minister set up a National Task Force to bring reforms in the power sector. In the first phase five IPPs were identified and initiated negotiations with them, he added.
The agreement, for the contract termination, with the five IPPs is one among several measures the government is taking for the tariff cut. Agreements with these IPPs will bring a saving of Rs 70 billion per annum, while the overall impact on the consumers will be Rs 411 billion, the minister claimed.
He said that all the pending dues of Rs 71 billion of the five IPPs will be cleared, however made it clear that they will not get any equity payments, interest on late payments, or fine for the early termination of contracts.
Besides, he said that government will review the performance and cost of generation of all the power plants, whether they are owned by government or private companies. “We have initiated the process by starting negotiations for the re-profiling debt of the Chinese Power Plants established under the CPEC portfolio,” the minister said. Had it not been for the Karachi incident, several Memorandum of Understandings would have been signed with China in the next couple of weeks,” the minister claimed.
The minister informed that the government also pursuing IPPs established under 2002 power policy to bring them to ‘take and pay’ from the existing clause of ‘take or pay’ in their contracts. However, he said that they will review the case of each and every IPPs individually.The Minister categorically stated that nothing will be done unilaterally,the amendment will be mutual understanding.
To achieve the target of slashing the tariff, the government expects approximately Rs 3.5 per unit cut from agreements with remaining local IPPs, Rs 3.75 per unit from re-profiling of debt of the Chinese IPPs, Rs 0.75 per unit duties/taxes, Rs 0.72 per unit from the closure of five IPPs and Rs 0.16 per unit TV fee being charged in the bills.
The government target to reduce power tariff by Rs 8-10 per unit would be achieved in few months, the minister hoped.
While replying to a query regarding the conversion of imported coal power plants into local coal, the minister said that it will take four to five years, and will help slashing the tariff by around Rs 2 to Rs 2.5 per unit.
The Minister also announced setting up of Independent Market Operator System in the power sector. A full-fledged institution was being set up which would be fully operational by January 2025, Leghari said and added that it would not only promote competition but also boost the entire power sector to the new heights.
He said National Transmission and Despatch Company (NTDC) is also being fully transformed into new shape and CPPA would have also its own role in the sector.
To boost electricity consumption in winter season, a comprehensive programme is being devised, Leghari informed. The consumers will get a relief of Rs 20 to Rs 30 per unit on their additional consumption, he added.
With these measures, the consumption of electricity would increase and it would also increase the industrial productivity.
The minister claimed that losses have been reduced by all the Discos during the last three months, except HESCO, SEPCO and QESCO where it was increased.
He said that charging stations/shops would be opened for charging of electric vehicles and batteries.