The government plans to reduce electricity tariffs by Rs12 per unit by March 2025 through agreements with private Independent Power Producers (IPPs), government power plants, and renewable energy sources such as wind and solar.
This initiative comes after extensive negotiations aimed at restructuring existing contracts, which could save up to Rs300 billion annually.
Crucially, the debt reprofiling of loans for China-Pakistan Economic Corridor (CPEC) projects and government power plants, along with a strategy to lower taxes on electricity bills, is expected to be finalized by the end of February. A senior official mentioned that any revenue shortfall will be compensated by other economic sectors. In the first phase, the government terminated power purchase agreements with five IPPs (M/s Hubco Power, M/s Rousch Power, AES Lalpir Power, Saba Power Plant, and Atlas Power) and recently scrapped the contract with Pakgen Power Limited (365 MW), bringing the total to six terminated contracts.
The official stated, “We anticipate a Rs3 per unit reduction in tariffs through discussions with IPPs, GPPs, wind, and solar plants. Debt reprofiling could lead to an additional Rs4 per unit decrease, while reducing taxes on electricity bills could lower tariffs by Rs5 per unit. This would bring the off-peak tariff from Rs41.68 to Rs29.68 and the peak-hour tariff from Rs48 to Rs36.”
The power task force aims to finalize negotiations with 18 IPPs and convert their contracts to a Take-and-Pay model soon, with 15 of the 18 already signing revised agreements. Following this, talks will extend to government power plants, including nuclear, hydropower, coal-based, and RLNG-based facilities, as well as provincial power plants and GENCOs. Discussions with renewable energy sources will begin after the government plants negotiations conclude, targeting completion by February 2025.
Senior officials from the Finance and Power Divisions are also negotiating with the Chinese government to extend loan repayment terms from 10 to 20 years. The official indicated progress is being made. Regarding taxes on electricity bills, the Federal Board of Revenue (FBR) collects Rs800 billion annually, and the Power Division has requested a reduction in this amount from Rs500 billion to Rs300 billion, which would further help lower tariffs by Rs5 per unit.
Thus far, the government has saved Rs400 billion in future capacity payments by terminating contracts with five IPPs, and an additional Rs200 billion from revised contracts with bagasse-based power plants. Once the Take-and-Pay agreements with the 18 IPPs are finalized, total savings could reach Rs800 billion. These agreements are expected to lower tariffs by Rs0.70 to Rs1 per unit, impacting savings of Rs70-100 billion. The 18 IPPs will receive past capacity payments, and interest payments along with excessive profits will be readjusted.
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The operational IPPs under the new Take-and-Pay model include Uch-I Power Limited (586 MW), Liberty Power Daharki Ltd (235 MW), Kohinoor Energy (131 MW), and several others.
In response to questions, the official noted that Halmore Power Generation Company and Orient Power Company have both issued notices regarding contract revisions, but amicable discussions are ongoing, with hopes of reaching an agreement on the Take-and-Pay model.
