Power minister says govt, IPPs on same page to reduce power prices Achi-News

Federal Minister for Energy (Power Division) Awais Leghari on Sunday said there was a consensus between the government and Independent Power Producers (IPPs) to reduce electricity prices, as financially challenged consumers struggle with unaffordable tariffs and little hope for immediate relief.

Leghari, along with sector officials and an economist, tackled the controversial issue of contracts with Independent Power Producers (IPPs) that allow them to earn a profit without producing any electricity, during News Geo talk show “Great Debate: Do what for Pakistan”.

In the debate anchored by senior journalist, analyst and anchor Shahzad Iqbal, the power minister addressed the growing public outcry over skyrocketing electricity bills and the ongoing debate over capacity payment (CPC) payments to IPPs.

With inflation and rising energy costs, almost all participants, including prominent entrepreneurs, were on the same page about the fact that it was high time to reconsider the current arrangements.

The power minister acknowledged the need for a thorough review of these agreements, suggesting that the government is open to exploring ways to renegotiate terms with IPPs to bring some relief to consumers.

Hubco CEO Kamran Kamal, Lucky Electric Power CEO Rohail Muhammad, FPCCI Vice President Asif Inam, former care minister Gohar Ejaz, and Economist Ammar Habib Khan added their voices, stressing the urgency for reforms.

Former care minister Gohar Ejaz said they are all on

the same page they have to save and run Pakistan, adding that farmers and industrialists are frustrated by high electricity prices.

Referring to the latest consumer price index (CPI) numbers, Ejaz said the inflation rate was not falling, just slowing down.

“If the consumption of electricity decreases, capacity charges will rise further,” warned Ejaz adding “We were paying those five factories that were not generating power.”

He also pointed out that these IPPs are raking in Rs260 million each without generating power, and also disclosed that a $60 million wind power project has been fixed for $120 million, burdening the national exchequer.

Hubco CEO Kamran Kamal said a master plan was made in 1992 and later in 1994, after the offloading in the 1980s, and later in 1994, the world’s leading companies invested in Pakistan.

Kamal further shared that after investing in the country, his company remained involved in 14 court cases for three years.

He said, “If we were to break the agreement with the government of Pakistan, it is our fault.”

According to the CEO of Lucky Electric Power, Rohail Muhammad, new plants have higher tariffs to begin with, but these tariffs will decrease over 30 years. Muhammad added that discussions about old underperforming plants had already taken place in 2020.

During the discussion, Leghari emphasized that IPPs and the government agree that electricity prices need to be reduced. He also pointed out that closing down five factories would reduce costs by 65 paisas.

“For the first time, distribution boards have been formed without political interference,” said the power minister.

Expanding on his argument, Ejaz pointed out that 16% of electricity is lost in transmission and fuel costs are Rs10 per unit, while the cost of producing each unit is Rs35.

Kamal further said: “10,000 megawatt plants have been installed in the south, but only 2,000 megawatts have been transferred from north to south over the past two years.”

He explained that capacity charges are a global phenomenon but vary in structure from country to country.

Mohammed Lucky Electric noted that no tenders had been submitted for the government’s 600-megawatt solar project.

Asif Inam, Vice President of FPCCI, said that the country’s biggest problem was capacity charges.

Responding to an FPCCI official, economist Ammar Habib Khan said that capacity charges are being maligned and are actually increasing due to the depreciation of the rupee.

Stressing the need to reprofile local debt in the power sector, Leghari said that discussions with IPPs had started a few months ago, and that the government was reviewing the tax structure.

However, Ejaz concluded by saying that some plants have already cleared their debts and taken returns as high as 2,000%.

The government is in a catch-22 situation. The high cost of electricity has become a contentious political issue, with the opposition parties fueling public discontent to criticize the current government’s handling of the energy sector.

Analysts say the political implications of the debate over capacity payments for IPPs are just as significant.

The burden of high electricity tariffs falls disproportionately on the middle and lower income segments of society, fueling public anger and eroding trust in the government’s ability to manage the economy.

The debate also highlights governance and accountability challenges in Pakistan’s energy sector.

Addressing these governance issues is essential to restoring public trust and ensuring the sustainable development of the energy sector.

Successful renegotiation with local and international IPPs would significantly reduce tariffs, promote industrial competitiveness, and increase public trust in the government’s ability to manage the economy effectively.

On the other hand, a failed renegotiation could multiply the tariffs, bringing the government and consumers under additional financial stress, overwhelming industry, and fanning public unrest.

Any populist-driven deviations from International Monetary Fund (IMF) terms under the current $7 billion loan program will not bode well for the country’s macroeconomic stability.

A status-quo in the situation, however, would lead to the government scrambling for quick solutions to quell growing public anger without solving the problem once and for all.