Energy Minister Mulls Canceling IPP Contracts as Power Demand Decreases

Electricity Cost Surge in Pakistan Linked to US Inflation Index, Experts Reveal,

ISLAMABAD: Energy Minister Mulls Canceling IPP Contracts as Power Demand Decreases,   Energy Minister Owais Laghari hinted at potential contract terminations with more expensive Independent Power Producers (IPPs), aiming for favorable outcomes in Pakistan’s energy sector.
Following an Energy Committee meeting, Minister Laghari addressed the media, noting a 10% decline in national electricity demand. Discussions are underway to assess the benefits and drawbacks of each IPP contract, evaluating their financial impacts.
“The feasibility and costs associated with terminating contracts with expensive IPPs must be carefully considered. Can we afford these costs today?” Laghari questioned, emphasizing the multifaceted approach being taken under the Prime Minister’s directives. A decision on this matter is expected imminently.
Responding to recent statements by Sheikh Rasheed advocating for IPP abolition to stabilize electricity prices, Laghari cautioned against oversimplifying the issue, suggesting that tariff adjustments post-January might influence consumer costs.

While, 

Experts from the Sustainable Policy Institute (SPI) have unveiled a startling reason behind Pakistan’s soaring electricity prices, attributing it to a direct link with the US inflation index.
In a briefing to the Council of Economic and Energy Journalists (SAGE), SPI disclosed that power tariffs in Pakistan escalate in tandem with US inflation, as Independent Power Producers (IPPs) charge rates pegged to the US inflation index. Energy Research Fellows Dr. Khalid Waleed and Ahad Nazir highlighted that this indexing mechanism remains intact regardless of fluctuations in the US dollar’s value.

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Over the years, SPI data shows a staggering 253% increase in electricity capacity charges from Rs. 3.26 per unit in 2019 to Rs. 10.34 per unit in 2024, solely due to US inflation impacts. Moreover, local inflation and rising interest rates have further exacerbated costs, with interest payments per electricity unit spiking by 343% and IPPs’ working capital increasing expenses by 716% over the past four years.
This revelation underscores significant implications for Pakistani consumers, who may face continued electricity price hikes driven by international economic factors.

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