- IPPs must terminate contracts once the modalities are finalized.
- The government will provide up to Rs 150 billion in terms of capacity payments.
- The current administration is negotiating the dues owed to independent energy buyers.
ISLAMABAD: At a time when the current government is making herculean efforts to address the multi-faceted challenges in the energy sector, five independent power producers (IPPs) have “agreed” to terminate their contracts as demanded by the government. News reported on Sunday.
According to the official part of the Energy Sector Task Force, the modalities have been settled, and once this is completed, all five IPPs will sign the documents to terminate the contracts.
This development comes at a time when Prime Minister Shehbaz Sharif’s administration, last month, warned owners of independent power plants of the “consequences” of not voluntarily terminating power purchase agreements.
“The government will no longer make capacity payments in the range of Rs 139-150 billion per annum to the said IPPs over the next 3-5 years. The owners of the said five IPPs have been informed about this. They have also been categorically informed,” the officials familiar with the matter said. The government has already overpaid IPPs in the form of capacity payments and royalties and has also paid IPP loans.
He added that in the details, the dues of independent energy producers will not be paid in the future, but rather their previous dues will be paid. However, they will only be paid the cost of electricity and not interest.
“More importantly, the previous power payments that the government owes to IPPs, amounting to between Rs 80 and Rs 100 billion, are being discussed. The size of these dues is being negotiated,” the senior official noted.
Four of the five IPPs in question were established under the 1994 and one under the 2002 energy policies.
Expressing the potential benefits of ending the contracts, the official said, “We will provide Rs 300 billion under energy payments to be made to them in the next three to 10 years. This is how consumers will get a relief of Rs 0.60 lakh.” Each unit is worth 60 billion rupees in one year (…) After the contracts are terminated, the five independent power plants will not be allowed to operate on a take-and-pay basis.”
He said another 17 independent power plants had been identified that were installed under the 1994 and 2002 policies. These IPPs will switch to receive and pay mode from the receive or pay mechanism. He added that the government will continue to buy electricity from them through the receipt and payment method until the private energy market is established.
“However, once the private energy market system is established, 17 independent power producers will be allowed to sell electricity under the CTBCM (Competitive Binary Trading Market) system.
“We are ready to establish a CTBCM within one and a half to two years so that IPPs can sell electricity to their customers using transmission fees,” he added.
He further stressed that Rs 26 per unit as wheeler duty will not work. Fees must be reduced so that CTBCM can function properly, putting the country on the path to progress. He said FBR needs to reduce its revenue collection through electricity bills.
The government currently monetizes Rs 800 billion annually as revenue from electricity bills. This means that the electricity consumer pays Rs 8 per unit under taxes, duties and surcharges.
If taxes, duties and surcharges are reduced by 50%, the tariff will decrease by Rs 4 per unit.
The official said the task force seeks to reduce tariffs on wind and solar power plants. He said some solar power plants are charging Rs 27 per unit which should be Rs 7 per unit and independent wind power producers are charging Rs 40 per unit which needs to be rationalized.