Pakistan Cabinet Approves Renegotiation of IPP Agreements to Reduce Power Costs and Circular Debt

Islamabad:The federal cabinet of Pakistan has approved a plan to renegotiate agreements with 14 Independent Power Producers (IPPs) to reduce electricity prices and address the country’s growing circular debt crisis.

The approval was granted in a cabinet meeting on Tuesday, aiming to address the rising inflation and electricity prices that have caused public unrest due to the agreements made in the 1990s and 2000s. These agreements have long been a source of contention as the cost of power continues to climb.

Energy Minister Sardar Owais Ahmad Laghari, in an official statement, highlighted that the core issue was the capacity charges paid to IPPs, regardless of electricity consumption, which have exacerbated Pakistan’s circular debt, now exceeding $8.6 billion.

The statement further revealed that, following negotiations with the 14 IPPs, revised agreements propose a reduction of 802 billion Pakistani rupees ($2.9 billion) in costs and profits. This includes a 35 billion rupee cut in excess profits. As a result, the government is expected to save $5 billion over the duration of these agreements, with annual savings amounting to 137 billion rupees, benefiting consumers.

The renegotiated deals include 10 IPPs established under the 2002 policy and 4 under the 1994 policy. Additionally, one IPP agreement from 1994 has been entirely canceled. These renegotiations are part of the government’s broader effort to reduce tariffs and capacity payments, a move that aligns with the recommendations of the International Monetary Fund (IMF) to alleviate fiscal pressure.

Prime Minister Shahbaz Sharif also praised the revised agreements, calling them a significant achievement. He emphasized that these settlements will not only save the national treasury but will also help eliminate the circular debt and reduce electricity prices for consumers.