ISLAMABAD: The government announced on Tuesday that it has struck a tariff-cutting agreement with bagasse-based power plants and that it will take four to six months to update power purchase agreements (PPAs) with eighteen additional independent power producers (IPPs) established under the power plans of 1994 and 2002.
Power Minister Owais Khan Leghari revealed last month that PPAs with the five oldest IPPs would be terminated early with consent from the federal cabinet. This will save an estimated Rs70 billion (71 paise per unit) annually, or around Rs411 billion over the remaining life of their contracts.
However, Prime Minister’s Special Assistant Muhammad Ali, who is also a member of the task group on renegotiations with IPPs, stated in testimony before the Senate Standing Committee on Power that the savings from those five oldest IPPs would amount to approximately Rs60 billion annually. The committee meeting was chaired by Senator Mohsin Aziz.
According to Mr. Ali, the current talks with IPPs are a component of the reforms aimed at stabilizing the power sector and promoting the growth of commercial and industrial activity. According to him, the federal cabinet approved the signing of the agreements with five IPPs last month.
saves Rs60 billion a year by working with five bagasse-based factories.
Negotiations with bagasse-based IPPs to delink their international coal-based pricing indexed to the US dollar have been concluded in the second round, he added.
The Pakistani rupee has now taken the place of their dollar indexation. According to him, a written summary of these modifications to the IPPs established by sugar mills on bagasse, or cane residue, has been forwarded to the federal cabinet for formal approval.
Mr. Ali informed the committee that the price of coal, expressed in dollars, has no bearing on the production of power derived from bagasse anywhere in the world. The tariff systems in other nations were now reflected in the renegotiations with sugar mill IPPs.
According to him, this was a component of the government’s plan to boost domestic fuel use and lessen reliance on imported fuels, which were prone to changes in international markets and caused a loss of foreign cash.
Since the 1994 power policy offered upfront tariffs and the 2002 policy offered equity-based returns linked to the exchange rate despite being a local investment, Mr. Ali claimed that the government’s 2019 examination of IPP contracts and tariffs was prompted by the ever-increasing and unaffordable energy costs. Many of these IPPs were earning returns exceeding 27 to 30 percent.
Additionally, because the IPPs obtained court stay orders, the National Electric Power Regulatory Authority was unable to get their efficiency and heat rate tests for tariff calculations.
While some coal-based plants were able to recoup their whole investment in two years, Senator Mohsin Aziz bemoaned the fact that IPPs’ power plant construction investments were recouped by sponsors in roughly four years.
According to Mr. Ali, these IPPs in Pakistan received returns of between 13 to 17 percent, which is twice what they would have received in any other nation. According to him, the government ought to distance itself from the power industry and concentrate on creating power markets, as is the case in other nations.
According to him, the task group is presently engaged in the third stage of talks with the state-owned power plants and 18 IPPs from 1994 and 2002. “The next three to six months will see the completion of the negotiations,” he stated.
The task force’s efforts to negotiate savings from IPPs were valued by Mr. Aziz and other committee members. The burden on the masses should now be lessened, they said.
The inclusion of IPP expenditures in the power bills of Peshawar Electric Supply Company in Khyber Pakhtunkhwa, despite the fact that no electricity is produced by IPPs in the province, was another concern brought up by Senator Aimal Wali Khan and was also examined by the committee.
The panel was informed by Special Secretary Arshad Majeed Mohmand that the federal government set the price of electricity based on a variety of energy sources and that the power tariff was the same throughout.
The committee believed that provinces need to benefit from their natural resources.
