PM says Pakistan terminating purchase agreements with 5 independent power producers

Pakistan Prime Minister Shehbaz Sharif speaks during a cabinet meeting in Islamabad on October 10, 2024. (Photo courtesy: PMO)

• Sharif says move will save $215 million per year for electricity consumers and $1.4 billion to the national treasury
• A decade ago, Pakistan approved dozens of motsly foreign-financed private projects by IPPs to tackle chronic shortages

KARACHI: Prime Minister Shehbaz Sharif said on Thursday Pakistan was terminating purchase agreements with five independent power producers (IPPs) to rein in electricity tariffs as households and businesses buckle under soaring energy costs.
A decade ago, Pakistan approved dozens of private projects by independent power producers (IPPs), financed mostly by foreign lenders, to tackle chronic 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, the government has built those fixed costs and capacity payments into consumer bills, sparking protests by domestic users and industry bodies.
“After today, the take and pay system of these five IPPs has been finished, it has been completely terminated. The previous obligations of these IPPs will only be paid but without any financial cost, without any interest,” Sharif said in televised comments as he addressed the federal cabinet. 
“This will benefit electricity consumers by Rs60 billion ($215 million) annually. As a result, the national treasury will save Rs411 billion ($1.4 billion).”
The PM said tariffs would be reduced gradually by revising agreements with other IPPs in the electricity sector also.
“Five IPP owners prioritized national interest over personal interest and voluntarily agreed to terminate these agreements with the government,” Sharif added.
In a notice to the Pakistan Stock Exchange, Pakistan’s biggest private utility, Hub Power Company Ltd, unveiled on Thursday the premature termination of its pact for the government to buy power from a southwestern generation project.
The government and market operator the Central Power Purchasing Agency (CPPAG) agreed to settle the company’s outstanding receivables up to Oct 1, the company said. 
The company said its board approved an accelerated expiry date of Oct. 1 for the deal, instead of an initial date of March 2027, in an action taken “in the greater national interest.”
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. 
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.
With inputs from Reuters