THE government is renegotiating power purchase agreements with private power producers to slash their capacity purchase payments in order to reduce electricity prices for end-consumers. The capacity payments are inbuilt in consumer tariffs to protect project developers from potential off-take risks, and cover their fixed costs and debt repayments to ensure that power plants are available for producing electricity if and when required. The Energy Task Force assigned the job of renegotiating the expensive agreements with the private power producers has already terminated the contracts of five plants nearing ‘superannuation’, and revised the contracts of another eight bagasse-based projects, resulting in estimated combined savings of nearly Rs650bn to the national exchequer over the remaining life of these plants. The task force is also believed to be in the advanced stages of renegotiating revisions in the PPAs of yet another 18 private producers with a view to drastically slashing their capacity payments.

During a briefing to the Senate Standing Committee on Power last month, the co-chair of the task force had stated that the government expects to save up to Rs300bn annually through negotiations with the independent power producers, potentially leading to a reduction of Rs2-3 per unit in electricity tariffs. Energy Minister Awais Khan Leghari has said the changes in the agreements with private producers will yield a power tariff reduction of up to Rs5 per unit. Chairing the federal cabinet on Tuesday, where the newly revised agreements with plants running on bagasse were ratified, Prime Minister Shehbaz Sharif said the government was taking all possible steps to reduce electricity prices for citizens. However, few believe that the savings in capacity payments to private generators will actually translate into lower electricity tariffs for consumers. The scepticism is based on past experience. It is not for the first time that the private producers are being coerced into signing revised deals, forgoing part of their guaranteed returns. It happened in 1998 and 2020, too, in the name of lowering electricity prices. But the savings were never used for making electricity affordable for the consumers. Rather, the consumers ended up paying the cost of the unintended consequences of these forced revisions in the sovereign contracts with private generators in the form of higher guaranteed returns for future generation capacity additions. It is not going to be any different this time.

Published in Dawn, December 12th, 2024