The federal cabinet, chaired by Prime Minister Shehbaz Sharif, has approved the power division’s recommendation to revise settlement agreements with 14 independent power producers (IPPs). The move is expected to save Rs1.4 trillion for the national exchequer and reduce electricity costs for consumers.

The revised agreements include reductions of Rs802 billion in profit and costs for the IPPs, along with the recovery of Rs35 billion in excess profits from previous years. Of the 14 IPPs, 10 were established under the 2002 Power Policy, while four operated under the 1994 Power Policy. The cabinet was informed that one agreement with an IPP from the 1994 policy had already been terminated earlier.

This decision follows a series of power sector reforms initiated by the government. In October, the government prematurely terminated power purchase agreements with five of the oldest IPPs, saving Rs411 billion. In December, settlement agreements were reached with eight bagasse-based IPPs, reducing electricity tariffs and saving an additional Rs240 billion.

The revised agreements are projected to save Rs1.4 trillion over their applicable duration, with annual savings of Rs137 billion. These savings are expected to benefit power consumers by reducing electricity prices and curbing the growth of circular debt in the power sector.

The government has also implemented other reforms, including suspending gas supply to captive power plants and fast-tracking the Competitive Trading Bilateral Contract Markets. These measures aim to reduce the burden of capacity payments on the government and consumers.

During the cabinet meeting, the prime minister praised the successful renegotiation of agreements, emphasizing that the initiative would significantly reduce circular debt, lower electricity prices, and lead to substantial national savings. He commended the efforts of the power minister, adviser, secretary, and the task force involved in achieving this milestone.