The Energy Task Force in Pakistan has successfully renegotiated deals with eight bagasse-fired Independent Power Producers (IPPs), including those owned by the Prime Minister’s sons, achieving an estimated cumulative saving of Rs 85-100 billion. This follows similar agreements with five other IPPs. The revised deals also reduce a recent Rs 22 billion tariff increase by Rs 8 billion.
The sugar mills that have signed revised Power Purchase Agreements (PPAs) with the government include Hamza Sugar Mills, Chiniot Sugar Mills, JWD-II, JWD-III, Rahimyar Khan Mills, Chenab Sugar Mills, Al-Moiz Sugar Mills, and Thal Industries. The negotiations reduced the bagasse rate from Rs 5,600 to Rs 4,500 per ton, with a 5% retrospective deduction applied, reported Business Recorder.
Special Assistant to the Prime Minister, Muhammad Ali, confirmed the amendments, noting that the Task Force’s inquiry focused on the National Electric Power Regulatory Authority’s (NEPRA) decision to increase tariffs for bagasse-based generation by 110%, linking them to international coal prices. The revised agreements shift pricing to a PKR-based model, expected to save the country over Rs 100 billion in future payments.
The government has already made initial payments to several sugar mills, including Rs 840.3 million to Chanar Energy and Rs 4.1 billion to two units of JDW. However, Almoiz and Thal Industries did not receive payments in the first phase.
The new agreements, effective from October 31, 2024, include several key terms: a revised bagasse price of Rs 4,500 per ton with 5% annual indexation, a 50% reduction in the Working Capital Component, and a 17% PKR-based Return on Equity with no future USD indexation. The agreements also stipulate that NEPRA will receive a tariff adjustment application within five days of execution.
The issue was discussed in the Senate Standing Committee on Power, where NEPRA faced scrutiny over the significant tariff increase for sugar mills’ co-generation power plants. The committee reviewed documentation showing NEPRA’s decision to allow a 5% annual indexation on the bagasse price, effective from October 2022, based on a coal-linked mechanism from the 2013 upfront tariff.
The Economic Coordination Committee (ECC) had previously approved a framework for power cogeneration from bagasse and biomass in March 2013, leading to NEPRA’s upfront tariff issuance. This included pricing calculations based on imported coal values and a levelised tariff of Rs 10.41/kWh for bagasse IPPs.
The Central Power Purchasing Agency (CPPA-G) had sought a Rs 15 billion adjustment under Prior Year Adjustments (PYA), drawing attention to the issue from businessman Arif Bilwani. The revised agreements aim to address these concerns and provide significant financial relief.
