On Tuesday, the government formally announced that it had reached an agreement with bagasse-based power plants to reduce tariffs. It also stated that the process of revising power purchase agreements (PPAs) with 18 other independent power producers (IPPs) established under the 1994 and 2002 power policies would take approximately four to six months.
Power Minister Owais Khan Leghari, with federal cabinet approval last month, disclosed plans for the early termination of PPAs with the five oldest IPPs, which is expected to save Rs70 billion annually (equivalent to 71 paise per unit), totaling approximately Rs411 billion over the remaining term of the contracts.
However, testifying before the Senate Standing Committee on Power, Muhammad Ali, the Prime Minister’s Special Assistant and a member of the IPP renegotiation task force, estimated that annual savings from the termination of these five oldest IPPs would be around Rs60 billion. The committee meeting was chaired by Senator Mohsin Aziz.
Mr. Ali stated that the ongoing negotiations with IPPs are a key part of the reforms aimed at stabilizing the power sector and boosting industrial and commercial activities. He mentioned that the agreements with the five IPPs were signed last month, following approval from the federal cabinet.
In the second round of negotiations, Mr Ali said an agreement had been reached with bagasse-based IPPs to unlink their pricing from international coal prices, which were previously indexed to the US dollar. This dollar-based indexation has now been replaced with the Pakistani rupee. A formal summary has been submitted to the federal cabinet for approval of these changes to the agreements with IPPs established by sugar mills using cane residue, known as bagasse.
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He further explained that globally, bagasse-based power generation is not tied to coal prices, especially in dollars. The renegotiations with sugar mill IPPs have now been aligned with tariff structures used in other countries.
