The federal cabinet on Tuesday gave the go-ahead the renegotiated deals with 14 Independent Power Producers (IPPs), estimated to save Rs1.4 trillion over their applicable duration and provide an annual relief of Rs137 billion to inflation-stricken power consumers.
After holding discussions with the 14 IPPs under the revised agreements, the cabinet gave the go-ahead to the Power Division’s recommendation for reductions of Rs802 billion in terms of profit and cost of the said IPPs.
With energy costs spiralling out of control, Pakistan kicked off renegotiations with IPPs late last year to bring electricity tariffs under control and ease the burden on consumers.
Rising power tariffs have stirred social unrest and shuttered industries in the $350 billion economy, which has contracted twice in recent years as inflation hit record highs.
Moreover, the meeting was also informed that an amount of Rs35 billion in excess profits from previous years would also be deducted from these IPPs under the revised agreements.
The cabinet meeting, chaired by Prime Minister Shehbaz Sharif at the PM House, was informed that 10 of these IPPs were operating under the 2002 Power Policy, while four were set up under the 1994 policy. Additionally, an agreement with one IPP from the 1994 policy has been terminated.
He appreciated the performance of the power minister, adviser, secretary, and members of the task force for finalising the revised agreements with IPPs, highlighting that this achievement would reduce the circular debt, lower tariffs, and lead to significant national savings. The Power Division officials also stated that it had reviewed contracts with 28 IPPs so far.
Faced with chronic shortages a decade ago, the government approved dozens of private projects by IPPs, financed mostly by foreign lenders. The incentivised deals included high guaranteed returns and commitments to even pay for unused power.
However, a sustained economic crisis has slashed power consumption, leaving the country with excess capacity that it needs to pay for.
Short of funds, the government has built those fixed costs and capacity payments into consumer bills, sparking protests by domestic users and industrial associations.
Moreover, the cabinet, on the recommendation of the committee formed with regard to the government’s right-sizing initiative, approved the merger of the Ministry of Narcotics Control into the Ministry of Interior Division.
After the merger, the Narcotics Control Division will function as a wing under the Ministry of Interior, while the Anti-Narcotics Force will operate as an attached department.
This integration is expected to save Rs183.25 million annually in administrative and operational expenses.
Similarly, the cabinet also approved the merger of the Aviation Division with the Ministry of Defence, which will save Rs145 million annually in terms of salaries, office expenditures and other administrative costs.
The cabinet was informed that civil aviation, previously under the Ministry of Defence until 2013, is being merged back into the Defence Ministry in line with the government’s austerity policy. This step is expected to improve airspace management.
