In a significant development aimed at revitalizing Pakistan’s power sector, the country’s top military leadership has engaged with independent power producers (IPPs) to explore strategies for making the sector financially and operationally viable.
On Monday, representatives from several IPPs met with military officials to discuss proposals for reducing power tariffs, thereby providing relief to both the public and the industrial sector and stimulating economic activity.
According to reports, the IPPs highlighted the financial strain caused by government power plants, which receive substantial capacity payments. Government plants, including those under the China-Pakistan Economic Corridor (CPEC), receive Rs. 840 billion and Rs. 650 billion annually, respectively, based on a dollar value of Rs. 278. In contrast, IPPs established under the 1994 and 2002 power policies receive only Rs. 130 billion, with their dollar value capped at Rs. 148 since 2021.
During the meetings, the military leadership was informed that the capacity payment for a single coal power plant in Sahiwal exceeds the combined payments for all IPPs established under the 2002 policy. Furthermore, capacity payments for government-operated nuclear, hydel, and RLNG plants are five times greater than those for older IPPs.
The IPP representatives, meeting in small groups, explained that even if their capacity payments were reduced to zero, the maximum relief for the government would be a modest Rs1.39 per unit in pre-tax bill savings. Notably, no representatives from the Power Division were present at these discussions.
The IPPs also stated that their capacity payments have decreased due to the capped dollar value and that they have largely repaid their loans. They noted that many IPPs are nearing the end of their power purchase agreements, with some already transitioning to a “take-and-pay” model, receiving no capacity payments.
The IPPs warned that further financial pressure on them could deter future investment in Pakistan’s economy. They also highlighted ongoing issues such as electricity theft, which costs Rs6 per unit, and the practice of overbilling.
A proposal to transfer loss-making distribution companies (Discos) to provincial control was discussed, with the stipulation that any provincial failure to reduce losses would result in deductions from their NFC award shares.
Additionally, the IPPs suggested transforming under-construction dams and hydropower projects into public limited companies, allowing shares to be traded on the stock exchange. This move, they argued, would enhance transparency and efficiency by establishing boards of directors and holding annual general meetings to combat corruption.
