Federal Minister of Energy (Energy Department) Awais Leghari on Sunday said there is consensus between the government and independent power producers (IPPs) to reduce electricity prices, as financially challenged consumers struggle with unaffordable tariffs and little hope of immediate relief.
Legari, along with sector officials and an economist, addressed the controversial issue of agreements with independent power producers (IPPs) that allow them to make profits without generating any electricity, during the period Geography News Talk show titled “Big Debate: What to do for Pakistan”.
In the discussion moderated by senior journalist, analyst and broadcaster Shahzad Iqbal, the Energy Minister addressed the growing public anger over the spike in electricity bills and the ongoing debate over capacity payment charges (CPC) to independent power producers.
With inflation and energy costs rising, almost all participants, including prominent businessmen, were of the opinion that it was time to reconsider current arrangements.
The Minister of Electricity acknowledged the need for a comprehensive review of these agreements, hinting that the government is open to exploring ways to renegotiate terms with independent power producers to bring some relief to consumers.
Hubco CEO Kamran Kamal, Lucky Electric Power CEO Rohail Muhammad, FPCCI Vice President Asif Inam, former caretaker minister Gohar Ijaz and economist Amar Habib Khan added their voices, stressing the need for reforms.
Former caretaker minister Gohar Ejaz said they were all ready
On the same page they must save and manage Pakistan, adding that farmers and industrialists are frustrated due to rising electricity prices.
Referring to the latest CPI numbers, Ijaz said that the inflation rate has not decreased, but has only slowed.
“If electricity consumption decreases, energy payments will rise further,” Ejaz warned, adding, “We were paying those five plants that were not producing energy.”
He also pointed out that these stand-alone projects were earning Rs 260 million each without generating power, and also revealed that a $60 million wind power project had been set up at a cost of $120 million, burdening the national exchequer.
Hubco CEO Kamran Kamal said that after load shedding in 1980s, a master plan was drawn up in 1992 and later in 1994, the world’s largest companies invested in Pakistan.
Kamal also added that after investing in the country, his company remained involved in 14 court cases for three years.
He said: “If we break the agreement with the Pakistani government, we are wrong.”
According to Lucky Electric Power CEO Raheel Mohamed, the new plants have higher tariffs initially, but these tariffs will decrease over 30 years. Mohamed added that discussions about old, underperforming factories had already been held in 2020.
During the discussion, Leghari stressed that independent power producers and the government agreed on the need to reduce electricity prices. He also noted that closing five factories would reduce costs by 65 paise.
The Minister of Electricity said: “For the first time, distribution councils have been formed without political interference.”
Expanding on his argument, Ejaz highlighted that 16% of electricity was lost during transportation and that fuel costs were Rs 10 per unit, while the cost of producing each unit was Rs 35.
Kamal said: “Stations worth 10,000 megawatts were installed in the south, but only 2,000 megawatts were transferred from the north to the south during the past two years.”
He explained that energy payments are a global phenomenon, but their structure varies from one country to another.
Mohamed from Lucky Electric pointed out that no bids had been submitted for the government’s 600 MW solar project.
Asif Inam, vice president of the Federation of Chinese Chambers of Commerce and Industry, said the biggest problem the country faces is capacity payments.
Responding to the FPCCI official, economist Amar Habib Khan said that capacity payments were poor and had actually increased due to the depreciation of the rupee.
Emphasizing the need to restructure domestic debt in the energy sector, Leghari said that talks with independent energy producers began a few months ago, and that the government is reviewing the tax structure.
However, Ijaz concluded by saying that some factories have already settled their debts and received returns of up to 2,000%.
The government is in a difficult position. The rising cost of electricity has become a controversial political issue, with opposition parties exploiting public discontent to criticize the current government’s handling of the energy sector.
Analysts say the political implications of the debate over energy payments to independent power producers are equally important.
The burden of rising electricity prices falls disproportionately on middle- and low-income segments of society, fueling popular anger and eroding confidence in the government’s ability to manage the economy.
This debate also reveals the challenges facing governance and accountability in Pakistan’s energy sector.
Addressing these governance issues is critical to restoring public confidence and ensuring sustainable development of the energy sector.
Successful renegotiation with domestic and international independent power producers would significantly reduce tariffs, enhance industrial competitiveness, and increase public confidence in the government’s ability to manage the economy effectively.
On the other hand, a failure to renegotiate could lead to a doubling of tariffs, putting the government and consumers under additional financial pressure, paralyzing industry, and fueling public unrest.
Any populist-driven deviations from the IMF’s terms under the current $7 billion loan program would not bode well for the country’s macroeconomic stability.
However, continuing the status quo would result in the government seeking quick solutions to defuse growing public anger without actually solving the problem once and for all.