ISLAMABAD: Pakistan is making preparations to stop capacity payments to independent power producers (IPPs) by dissolving the mechanism of take-or-pay, Pakistani state media reported on Friday.
Take-or-pay is referred to as capacity payments in Pakistan where the government has to pay private companies irrespective of how much of the power they generate is transferred to its grid.
Pakistan approved dozens of private projects by IPPs, financed mostly by foreign lenders, a decade ago to tackle chronic power shortages. But the deals, featuring incentives such as high guaranteed returns and commitments to pay even for unused power, ultimately resulted in excess capacity after a sustained economic crisis slashed consumption.
This month, Prime Minister Shehbaz Sharif’s cabinet approved settlement agreements with eight bagasse-based IPPs with the aim to reduce electricity prices and save the national exchequer billions of rupees, the Radio Pakistan broadcaster reported.
“The agreement between IPPs and the government’s Energy Task Force is a significant milestone, which can result in saving of 300 billion rupees ($1.07 billion) of the national exchequer,” the broadcaster said.
Short of funds, successive Pakistani governments have built those fixed costs and capacity payments into consumer bills, sparking protests by domestic users and industry bodies.
In October, PM Sharif said his government was terminating purchase agreements with five IPPs to rein in electricity tariffs as households and businesses buckled under soaring energy costs, according to state media. Pakistan’s Central Power Purchasing Agency was due to approach the National Electric Power Regulatory Authority (NEPRA) for a reduction in the electricity tariff generated from these power plants.
There is a possibility of Rs3.50-6.50 decrease in the electricity tariff as a result of government reforms as the government has pledged to pay outstanding dues within 90 days as prescribed in the agreements, Radio Pakistan reported on Friday.
“The government has also expressed resolve to promote private partnership for development of energy sector,” the report read.
The need to revisit power deals was a key issue in talks for a critical staff-level pact in July with the International Monetary Fund (IMF) for a $7-billion bailout. The program was approved in September.
Pakistan has also been holding talks on reprofiling power sector debt owed to China and structural reforms, but progress has been slow. It has also vowed to stop power sector subsidies.
Pakistan prepares to terminate take-or-pay contracts with independent power producers
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Pakistan prepares to terminate take-or-pay contracts with independent power producers
- Pakistan approved a decade ago dozens of mostly foreign-financed private projects by IPPs to tackle chronic power shortages
- PM Sharif’s cabinet this month approved settlement agreements with eight IPPs with the aim to reduce power tariff, expenses
Pakistan PM calls for faster CPEC implementation, pledges security for Chinese workers
- Shehbaz Sharif pushes expanded cooperation in agriculture, IT and mining under CPEC phase two
- Chinese envoy reaffirms Beijing’s support for Pakistan’s sovereignty and economic development
ISLAMABAD: Prime Minister Shehbaz Sharif on Friday called for speeding up projects under the China-Pakistan Economic Corridor (CPEC) and pledged stronger security guarantees for Chinese workers and investments, during a meeting with China’s ambassador in Islamabad.
Sharif made the remarks as the two countries strive to launch the second phase of CPEC, a multibillion-dollar infrastructure and energy initiative launched in 2015 as part of China’s Belt and Road Initiative (BRI).
CPEC’s first phase focused largely on power generation and transport infrastructure aimed at easing Pakistan’s chronic energy shortages and improving connectivity. The second phase seeks to expand cooperation into industrial development, with an emphasis on special economic zones and export-oriented growth.
“While highlighting the importance of accelerating ongoing CPEC projects, the Prime Minister stressed on the need to enhance cooperation in agriculture and IT and mining & minerals,” said a statement circulated by the PM Office after the meeting.
“He also underscored Pakistan’s resolve to provide a secure and conducive environment for Chinese personnel, investments, and institutions in Pakistan,” it added.
Chinese nationals and projects in Pakistan have faced security threats in the past, including attacks by militant groups targeting infrastructure sites and convoys. Islamabad has repeatedly vowed to tighten security and has deployed special protection units for Chinese workers.
China is Pakistan’s closest ally in the region and a key economic partner, with CPEC widely regarded by Islamabad as central to long-term economic growth.
During the meeting, the prime minister conveyed greetings to Chinese President Xi Jinping and Premier Li Qiang, particularly on the occasion of the Chinese New Year.
China’s Ambassador to Pakistan, Jiang Zaidong, reiterated Beijing’s support for Pakistan’s sovereignty and socioeconomic development, according to the statement. Both sides also exchanged views on regional and international issues and agreed to maintain close coordination.
