By SKM
January 14, 2024
ISLAMABAD: The Federal Cabinet that met here on Tuesday with Prime Minister Shehbaz Sharif has accorded approval to the revised agreements with 14 IPPs based on ‘take and pay’ model with the minimum dispatch rate of 35 percent, which will pave for the reduction in profit and cost of the IPPs amounting g to Rs802 billion.
Under the revised contract, RoE (return on equity) payments will now be exclusively in Pak rupees, replacing the previous US dollar-based indexation system. The fixed RoE rate has been set at 17%, based on an exchange rate of Rs168 per US dollar, a senior official of the power division who attended the meeting told Exclusive.com.pk
During the meeting, the Prime Minister appreciated the Task Force on Power, its members, Special Assistant to Prime Minister on Power Mr Muhammad Ali who negotiated revised agreements with IPPs said that these revised contracts would help reduce the financial burden on the national exchequer, but would also help reduce the overall tariff, says the statement issued from PM secretariat.
The press note says that the government will also take from IPPs, the amount of Rs35 billion in the head of excess payments illegally made by private powerhouses. So far, the government has managed to ensure future savings of Rs1.4 trillion in the remaining period of their contracts.
However, the official explained saying that this means Rs137 billion annual savings the system would have with an impact of Rs1.37 per unit per annum. However, negotiations with one IPP have reached near completion whereas talks with three ones are underway.
Under the new agreements with 14 IPPs, the Return on Equity (RoE) from capacity-based calculations has been to payments based on actual electricity sold. Out of 14 IPPs, 10 were established under 2002 power policy and 4 were installed under 1994 power policy. Out of four, the government has also scratched down the power purchase agreement of one IPP and so, the task force on the power has so far terminated power purchase agreements with 6 IPPs with a saving of over Rs411 billion in future years.
The newly agreed financial model will dramatically reduce future capacity payments and recoup “excess profits” previously earned by the IPPs, particularly in relation to fuel costs and other expenditures. The renegotiations also lead to the elimination of the ‘take-or-pay’ structure, which guaranteed IPPs fixed payments, regardless of actual electricity generation. Instead, future RoE will be based on actual energy generation, with a minimum threshold to ensure operational sustainability. Ends
