Govt Seeks to Slash Power Costs by Renegotiating Existing Deals'”Leghari

Islamabad_(Mudassar Iqbal)-Pakistan’s coalition government, led by the PML-N, is renegotiating contracts with independent power producers (IPPs) to reduce “unsustainable” electricity tariffs, Energy Minister Awais Leghari announced. The move aims to alleviate the burden of soaring energy costs on households and businesses.

The existing price structure of power in Pakistan is not sustainable, Leghari said in an interview. Discussions are underway between power producers and the government because both sides understand that the status quo cannot be maintained. Leghari emphasized that stakeholders must compromise and find a solution as soon as possible.

Rising power tariffs have sparked social unrest and shuttered industries in Pakistan’s $350 billion economy, which has contracted twice in recent years due to record-high inflation. The government approved dozens of private projects by IPPs a decade ago, offering high guaranteed returns and commitments to pay for unused power. However, the economic crisis has reduced power consumption, leaving the country with excess capacity that it must pay for.

The government has built fixed costs and capacity payments into consumer bills, prompting protests from domestic users and industrial associations. Sources in the power sector revealed that changes to contracts demanded include slashing guaranteed returns, capping dollar rates, and moving away from paying for unused power.

The focus on energy sector viability was a critical aspect of the staff-level agreement with the International Monetary Fund (IMF) for a $7 billion bailout. The IMF’s staff report stressed the need to revisit power deals. Pakistan has initiated talks on reprofiling power sector debt owed to China and negotiations on structural reforms, but progress has been slow.

Govt aims to bring tariffs down to 9 from 28 US cents per unit.

Leghari stated that current rates are unaffordable for domestic or commercial consumers, hurting growth because power prices are no longer regionally competitive, putting critical exports at a disadvantage. The aim is to bring tariffs down to 9 US cents per unit for commercial users from about 28 cents currently.

Earlier, the minister signaled that permanent relief for consumers was on the horizon. A detailed review of matters related to IPPs has been completed, and the nation can expect good news soon. However, any one-sided change in IPP contracts is unlikely, as Leghari warned that such a move would create a “Reko Diq-like situation.”

In the past 15 years, Pakistan has suffered losses of nearly Rs5,082 billion due to the government’s failure to control circular debt, resulting in an annual loss of Rs370 billion.