The Pakistani government has temporarily suspended payments to 18 Independent Power Producers (IPPs) with a combined capacity of 4,267 MW. This move precedes negotiations to shift their power purchase agreements (PPAs) from a “take-or-pay” to a “take-and-pay” model. The change is intended to be temporary, lasting until the Competitive Trading Bilateral Contract Market (CTBCM) is fully operational in two years.

The affected IPPs, established under 1994 and 2002 power generation policies, are being targeted for contract renegotiation. While the government hasn’t publicly explained the payment halt, sources suggest it’s linked to settling outstanding dues with Chinese IPPs ahead of a visit by Chinese Premier Li Qiang, and finalizing payments to five IPPs for prematurely terminated contracts. Some insiders claim the moratorium is temporary, although reasons remain undisclosed.

The government has previously committed to the International Monetary Fund (IMF) to finalize a policy framework by September 2024 (a deadline now missed) to transition to a new electricity wholesale market. This market aims to improve distribution efficiency and incentivize better management of distribution companies (Discos).

The transition is planned to be phased to minimize consumer and budgetary impact. The government also intends to reduce capacity payments while clearing arrears, potentially through PPA renegotiation and extending bank loan durations.

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The list of affected IPPs and their capacities includes: Uch-I Power Limited (586 MW), Pakgen Power Limited (365 MW), Liberty Power Daharki Ltd (235 MW), Kohinoor Energy (131 MW), Fauji Kabirwala Power Company Limited (157 MW), Attock Gen Limited (165 MW), Engro Power Gen QadirPur Limited (227 MW), Foundation Power (Daharki) (185 MW), Halmore Power Generation Company (225 MW), Liberty Power Tech Limited (200 MW), Hubco Narowal Energy Tech Limited (220 MW), Nishat Chunian Power Limited (200 MW), Nishat Power Limited (200 MW), Orient Power Company (229 MW), Saif Power Limited (229 MW), Saphire Power Limited (225 MW), New Bong Hydel IPP (84 MW), and Uch-II Power Project (404 MW).

Several IPPs have reportedly agreed to renegotiate their contracts, citing the need to address the power sector crisis and work towards a mutually beneficial agreement. At least one CEO publicly announced their consent to contract revision.