- Financial relief for consumers and the broader reforms aimed at stabilising Pakistan’s energy sector
In a decisive step toward reforming Pakistan’s energy sector, the government has terminated power purchase agreements (PPAs) with five Independent Power Producers (IPPs), a move projected to save consumers Rs60 billion annually while reducing electricity tariffs.
Prime Minister Shehbaz Sharif recently announced the decision during a federal cabinet meeting, positioning it as part of a broader effort to cut costs and bring much-needed efficiency to the power sector. With circular debt now exceeding Rs2.7 trillion, this move is seen as a vital measure to ease the burden on both the public and the national economy.
The termination of contracts, which impacts HUBCO, Lalpir, Saba Power, Rousch Power, and Atlas Power — five of the oldest IPPs with a combined capacity of 2,463MW — marks the beginning of the government’s long-term strategy to reduce electricity tariffs and stabilise the energy sector. These IPPs, established under the 1994 power policy, were nearing the end of their operational lives. The government expects that cancelling these contracts will not only save Rs411 billion for the national treasury but also reduce electricity tariffs by about 71 paise per unit, directly benefiting consumers.
Speaking on the decision, Power Minister Awais Ahmed Khan Leghari highlighted that the government is taking further steps to review contracts with other IPPs, as well as state-owned power plants, with the goal of lowering tariffs by Rs8 to Rs10 per unit.
Additionally, the government is preparing a winter package aimed at boosting electricity consumption, offering significant discounts of Rs20 to 30 per unit on extra usage. These initiatives reflect a commitment to addressing inefficiencies in the sector and reducing the high energy costs that have long burdened consumers.
Leghari also noted that this agreement was reached through “mutual consent,” with the IPPs placing national interests ahead of profit. The minister acknowledged the efforts of the army chief, government institutions, and regulators, as well as PM’s special assistant Muhammad Ali, for playing critical roles in what was previously deemed “impossible.” This collaborative effort reflects a shift in priorities, with energy sector reforms moving to the forefront of the government’s agenda.
In addition to terminating IPP agreements, the government is also negotiating with Chinese power plants established under the China-Pakistan Economic Corridor (CPEC) to reprofile their debt, further contributing to the goal of lowering electricity tariffs. While the government had planned to sign several memorandums of understanding (MoUs) with Chinese companies. However, the energy ministry remains optimistic about concluding these agreements in the coming weeks.
To ensure a sustainable transformation of the power sector, the government has set up the Independent System and Market Operator (ISMO) by merging the National Power Control Centre (NPCC) and the Central Power Purchasing Agency (CPPA). This new entity will manage electricity supply and demand more effectively, mimicking stock exchange operations to promote competition. The ISMO is expected to be fully operational by January 2025, creating a more dynamic and competitive power market. In tandem, the government is also focusing on reducing power distribution losses and improving system efficiencies in distribution companies.
The termination of these agreements comes at a critical time when the government is looking to address the circular debt crisis and reduce inefficiencies across the power sector.
The reduction in tariffs is expected to support industrial productivity and improve the competitiveness of local businesses, which have long struggled with high energy costs.
Additionally, the government plans to review contracts with IPPs established under the 2002 power policy, with the goal of converting them from “take or pay” to “take and pay” agreements, further aligning electricity consumption with actual demand.
Prime Minister Shehbaz Sharif commended the voluntary decision of the IPPs to end their contracts, calling it a significant milestone for Pakistan’s energy reforms. He also expressed gratitude to overseas Pakistanis for their continued trust in government policies, as reflected in record remittances of $8.8 billion in the last quarter. This financial boost has provided much-needed support for Pakistan’s economic recovery, helping to offset the challenges posed by inflation and high energy costs.
With inflation now down to 6.9%, the Prime Minister reiterated the government’s commitment to providing relief to the public. The termination of IPP contracts, alongside other measures, underscores the government’s broader strategy to stabilise the economy, reduce energy costs, and promote sustainable growth in the long term.