Govt hits Rs1.4 trillion jackpot with revised IPP deals

In a bid to reduce electricity costs, Islamabad has approved the power division’s recommendation to alter settlement agreements with 14 independent power producers (IPPs). According to Dawn, this move will save the national exchequer a staggering 1.4 trillion rupees.

Islamabad has been actively working to fiscally free itself from the suboptimal conditions of the agreements it signed with IPPs in the past. In October 2024, the federal government decided to end power purchase agreements with five of its oldest IPPs, which allowed Pakistan to save a whopping 411 billion rupees.

Staying true to its crusade against IPPs, Islamabad reached settlement agreements with eight more IPPs in December 2024 in the hopes of reducing electricity tariffs and sparing the national exchequer from an outflow of 240 billion rupees.

Analysts have commended the government for these power sector reforms, which indicate its willingness to stick to financially sustainable power generation agreements. The government has also agreed to strangle the supply of gas to captive power plants (CPP) on the directives of the International Monetary Fund (IMF).

The goal behind the reforms is to boost the revenues earned by power distributors, thus reducing the growth of circular debt in the power sector. Industrialists and business owners will be pleased to know that the reduction of this debt may translate into lower electricity costs in the long run.

After discussing the 14 IPPs under the revised agreements, the federal cabinet approved the recommendation, which would reduce profit and costs by 802 billion rupees, as per Dawn. Furthermore, it was noted that the IPPs earned excess profits of 35 billion rupees, which will be deducted now as per the new agreement.

The reason behind these IPPs racking up such large amounts of excess profits is that they have been operating in Pakistan for the better part of three decades. Of the 14 IPPs, four had been established as per the 1994 Power Policy, while an additional 10 started operating under the 2002 Power Policy. Members of the cabinet were informed that an agreement with one of the IPPs had already been nullified before the recent revision.

Prime Minister Shehbaz Sharif outlined how the revised agreements will allow the cash-strapped nations to reduce their circular debt, allowing for a greater level of national savings.

There is merit to Shehbaz Sharif’s claim as the revisions will allow the national exchequer to witness annual savings of 137 billion rupees. The combined value of the savings over their applicable duration translates into the government being fiscally spared from a 1.4 trillion-rupee outflow.