ISLAMABAD: In a bold move signaling deepening tensions between the government and private energy suppliers, ten Independent Power Producers (IPPs) have approached Prime Minister Shehbaz Sharif with a series of demands aimed at restructuring their sovereign contracts. This action arises from growing frustration over claims that capacity payments to IPPs have contributed to skyrocketing consumer tariffs.
In a joint letter, the IPPs—comprising notable entities such as Pakgen Power, Nishat Power, and Hubco Narowal—have highlighted ongoing negotiations to shift their Power Purchase Agreements (PPAs) from a “take or pay” model to a “take and pay” framework. This transition is seen as crucial to alleviating financial strain on consumers.
Muhammad Ali, Special Assistant to the Prime Minister on Power, confirmed that discussions with the 2002 Policy IPPs are set to commence on Monday. The urgency of these talks reflects the mounting pressure on the government to address escalating energy costs.
While the IPPs acknowledged the high consumer tariffs, they argued that attributing the issue solely to capacity payments is misleading. They assert that the broader economic challenges are to blame, echoing sentiments from former Prime Minister Shahid Khaqan Abbasi, who stated that a weak economy, not the IPPs, has harmed the energy sector.
The Task Force on Power Reforms, led by Minister for Power Sardar Awais Khan Leghari, is reportedly exploring the termination of “take or pay” contracts. However, the IPPs warn that this proposal could push them toward bankruptcy, as it would force them to cover fixed costs without guaranteed purchases from the government.
The IPPs have voiced concerns that the current government approach is discriminatory, particularly as new tariffs have been introduced that are indexed to the US dollar, offering a 14% return while still adhering to the contentious “take or pay” mechanism.
In their letter, the IPPs outlined four key conditions for terminating their contracts:
• Payment of all past due amounts upon termination.
• Elimination of “take or pay” contracts to remove capacity payments.
• Permission to sell power to private buyers using existing transmission and distribution systems.
• Continued supply of LNG from SNGPL for those reliant on this fuel until private importation is permitted.
The IPPs warned that forced renegotiations of sovereign contracts could jeopardize the privatization process and undermine investor confidence in Pakistan’s energy sector.
They stressed that any meaningful reduction in consumer tariffs would require increased power sales, substantial reforms in the transmission and distribution system, and a reduction in the heavy tax burden currently placed on consumers.
The IPPs have called for an urgent meeting with stakeholders to reassess the government’s strategy and discuss their proposed actions, highlighting the critical need for collaboration in tackling the ongoing energy crisis.
As negotiations loom, all eyes will be on how the government responds to these demands and whether a sustainable solution can be reached to address the concerns of both producers and consumers alike.
