Top military leadership has now joined efforts to improve the financial and operational viability of the power sector.
On Monday, the owners of several independent power producers (IPPs) met with senior military leaders to present their proposals for reducing power tariffs to alleviate the burden on the public and the industrial sector, thereby boosting economic activity.
According to sources, the IPPs highlighted to the military leadership that the primary issue lies with government-owned power plants, which receive Rs840 billion annually, and CPEC (China-Pakistan Economic Corridor) power plants, which get Rs650 billion in capacity payments based on a dollar value of Rs278. In contrast, IPPs established under the 1994 and 2002 power policies receive only Rs130 billion, with the dollar value capped at Rs148 since 2021.
The military was informed that the capacity payment for a single Sahiwal coal power plant exceeds the total capacity payments for all 2002 IPPs combined. Additionally, payments to government plants (nuclear, hydel, and RLNG) are five times higher than those for all older IPPs.
The owners of six to seven IPPs met with the military in groups of two, discussing the current challenges in the power sector. They indicated that if more pressure is applied to IPPs established under the 2002 policy, leading to zero capacity payments, the maximum relief the government could achieve would be Rs0.85 per unit for FY25, and Rs0.54 per unit for the 1994 policy IPPs, totaling only Rs1.39 per unit in pre-tax savings. Notably, no representatives from the Power Division attended these meetings.
The IPPs explained that since 2021, the US dollar value for IPPs under the 1994 and 2002 policies was capped at Rs148, leading to reduced capacity payments of Rs130 billion and the repayment of a significant portion of their loans. In 2012, they agreed to lower the USD-based internal rate of return (IRR) from 15% to PKR-based returns, effectively reducing their guaranteed dollar returns to about 9%. Many of these IPPs are set to retire as their power purchase agreements (PPAs) conclude within the next two to three years, with some already transitioning to ‘take-and-pay’ mode post-contract, thus receiving no capacity payments.
They warned that further pressure on private sector IPPs could deter future investment across various sectors of the economy. The meeting also discussed the prevalent issue of electricity theft, with reports of Rs6 per unit being stolen in various distribution companies (Discos) and recovery efforts through overbilling still ongoing. A proposal to transfer loss-making Discos to provincial control was also considered; if provinces fail to reduce Disco losses, these losses would be deducted from their NFC award shares.
Additionally, the IPPs suggested that under-construction dams and hydropower projects be converted into public limited companies, with shares floated on stock exchanges to involve the public. Each project would have its own board of directors and hold annual general meetings (AGMs) to combat corruption and improve efficiency in dam and hydropower operations.
