Govt asked to renegotiate IPPs contracts to reduce power tariff

LAHORE                   –               The Pakistan Industrial and Traders Association Front has asked the government to renegotiate power purchase agreements with the independent power producers (IPPs) to reduce power tariff, as the IPPs are earning around 40% profit on electricity generation, which is more than 17% high of the initial rate of return (IRR) agreed with them in dollar terms.

PIAF chairman Mian Nauman Kabir, in a joint statement along with senior vice chairman Nasir Hameed and vice chairman Javed Iqbal, expressed displeasure over the working of the IPPs, saying that their behavior is exploitative, urging the government to hold talks with these companies to review the prevailing agreements.

He said that the IPPs capacity utilization is only 50% mainly because the producers do not buy sufficient fuel and choose to operate at only 50% of capacity and still enjoy soaring profits. A third of the installed generating capacity is owned by the independent power producers (IPPs), he said and added the current IPPs contracts guarantee payments and profits with no requirement for fuel efficiency.

Referring to a report of the World Bank, he said that the power sector reforms can help Pakistan save billions in business losses annually as inefficiencies in the sector cost the country’s economy almost 6.5 percent of GDP.

We can boost economic growth and job creation by overcoming inefficiencies in its power sector, and reforms that address these distortions can make better use of existing facilities.

“We need to focus on eliminating waste, promoting the shift towards cleaner energy and attracting private investments. Almost a fifth of electricity generated is lost through poor infrastructure, faulty metering, and theft.”

Mian Nauman Kabir said that most private investors have built oil-powered inefficient plants because of their low construction costs and short lead times, and the oil price has skyrocketed since these plants were built in 1990s.

He further revealed that earlier, only those IPPs underwent dollar indexation that invested in foreign exchange. But later, the Economic Coordination Committee allowed dollar indexation to those companies that invested in local currency as well which proved to be dangerous for the government as well as the consumers.

He observed that the government had granted them several favors. But now, the agreements can be renegotiated to prevent losses to the national exchequer and eliminate undue advantage the IPPs are enjoying.

The PIAF fully backs the proposal that opposes the renewal of power purchase agreements with independent power producers (IPPs) having 5,000-megwatt electricity generation capacity, which are expiring now.

He said that the government should not continue to follow the power purchase agreements on a ‘take and pay’ basis, which binds the government to pay capacity charges. These power plants should only sell electricity to the Central Power Purchasing Agency (CPPA) in the summer season when demand is higher compared to the winter.

Mian Nauman Kabir siad that the power plants were set up under the Power Policy of 1994 and were based on furnace oil and the flaw is that the past government had not foreseen the future scenario of prices of different fuels.

At that time, the furnace oil was cheaper than the domestically produced gas. In the new policy, the government should examine the future scenario of fuel and gas prices, as the imported LNG and coal have also become part of the energy basket in addition to furnace oil and domestic gas now.

PIAF chief said that as a review of the prevailing agreements, all the IPPs should agree to conduct the heat rate tests. Moreover, the dollar indexation to IPPs who do not invest in foreign currency should be disallowed.


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