Power tariff records slight drop as govt revisits IPP agreements

In an effort to reduce the financial burden faced by the power sector, the federal government has inked several deals with Independent Power Producers (IPPs). According to credible reports, Islamabad has been able to reach agreements with seven IPPs and has attained a tariff reduction of 0.5 rupees per unit.

While the tariff cut seems measly at first glance, key officials from the power division have estimated that the tariff revisions could result in 920 billion rupees in savings over the life of the IPP agreements. Details from reports suggest that the savings are linked to capacity payments that have to be made to the IPPs.

However, analysts have outlined how the lifetime savings resulting from the new tariffs pale in comparison to the annual capacity charges that have to be paid to IPPs. Data from reports suggests that the aforementioned capacity charges can run as high as 2.8 trillion rupees in a single year.

Authorities informed the National Electric Power Regulatory Authority (Nepra) regarding the tariff revision in a public hearing that was set on Monday. This development came about as Islamabad inked agreements with Nishat Power, Nishat Chunian Power, Engro Power, Liberty Power Tech, Narowal Energy and Sapphire Electric.

Power Division officials were initially questioned regarding the motivations behind IPPs agreeing to reduce tariffs. Reports reveal that some believed that the IPPs were coerced into giving Islamabad to attain lower tariffs.

However, these allegations were swiftly dismissed by authorities from the power division, who clarified that the IPPs had not signed the agreement under duress. There is merit to this claim, as various IPPs have refused to revise agreements that would favour the general public.

As per reports, Orient Power refused to lower tariffs and, as such, were not included in the list of IPPs with revised agreements. Nevertheless, Islamabad continues to seek better terms with IPPs that refuse to revise the current agreements.

Key officials have explained that the tariff cut is directly linked to the sale volume of electricity. If sales rise, grid users may witness a higher cut. The converse is nonetheless true if sales volume drops as the ‘impact’ may be reportedly wiped out.

However, users of the national grid should not celebrate as the government does not intend to pass on the savings to the general public. As per reports, this is because the International Monetary Fund (IMF) has not allowed Islamabad to pass on the ‘relief’ to users.