In the wake of the government’s decision to terminate contracts with five independent power producers (IPPs), speculation is rife regarding potential reductions in electricity prices for consumers. Analysts are questioning whether this move will lead to substantial financial benefits for the government, as well as whether ordinary consumers will also see any advantages from the cancellation.
Pakistan will need to pay over 2 trillion rupees in capacity payments to power companies in the current fiscal year, BBC reported.
An energy sector expert at the Pakistan Institute of Development Economics, Aafia Malik, clarified that “the termination of the five companies’ contracts will not provide substantial relief in capacity payments. The contracts of these five companies were set to expire in the next year and a half to two years anyway.”
She further explained that there are 46 power plants established under the power policies of 1994, 2000, and 2006. This means that after the termination of these five contracts, 41 companies will still remain. Additionally, there are power plants established in 2015, as well as the government’s hydropower and nuclear plants.
She concluded, “there will be no significant reduction in capacity payments due to the cancellation of these contracts, nor is any notable decrease in electricity bills for consumers expected.”
Pakistan’s Prime Minister’s Coordinator, Rana Ihsan Afzal, acknowledged that “the termination of these five contracts will not lead to an immediate reduction in electricity bills for consumers. While the cancellation has resulted in a decrease of about 70 paisa per unit in the electricity tariff, this will only save the government 70 billion rupees.”
He also mentioned that this is an ongoing process, and the government is negotiating to revise contracts with other IPPs, with a task force actively working on this matter.
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Rana Ihsan Afzal further stated that discussions are also underway regarding the re-profiling of loans with Chinese power plants, and he hopes that progress in these talks will eventually lead to lower electricity bills for consumers.
He emphasized that the termination of contracts with the five companies is a positive development, as it occurred with the mutual consent of both parties.
