KARACHI: The federal government has decided to slash electricity tariffs by Rs12 per unit in the next three months.
As per details, the government will reduce electricity tariffs by March 2025 through agreements with private Independent Power Producers (IPPs), state-run power plants, and renewable energy sources such as wind and solar.
This initiative follows extensive negotiations aimed at restructuring existing contracts, potentially saving up to Rs300 billion annually.
A key part of the plan involves the debt reprofiling of loans related to China-Pakistan Economic Corridor (CPEC) projects and government power plants, along with a strategy to lower taxes on electricity bills. This is expected to be finalised by the end of February. A senior official indicated that any revenue shortfall will be compensated by other sectors of the economy.
In the first phase, the government terminated contracts with five IPPs—Hubco Power, Rousch Power, AES Lalpir Power, Saba Power Plant, and Atlas Power—along with a recently scrapped contract with Pakgen Power Limited (365 MW), bringing the total number of terminated contracts to six.
The official explained that discussions with IPPs, government power plants (GPPs), and renewable energy sources could lead to a Rs3 per unit reduction. Debt reprofiling may result in an additional Rs4 per unit drop, and cutting taxes on electricity bills could lower tariffs by Rs5 per unit. This would reduce off-peak tariffs from Rs41.68 to Rs29.68 and peak-hour tariffs from Rs48 to Rs36.
The government is also in talks with 18 IPPs to convert their contracts to a Take-and-Pay model, with 15 of these IPPs having already signed revised agreements. Following this, negotiations will extend to government power plants, including nuclear, hydropower, coal-based, and RLNG-based facilities, along with provincial plants and GENCOs. Discussions with renewable energy sources will start after the government power plant talks are concluded, with a target completion date of February 2025.
Officials from the Finance and Power Divisions are also negotiating with the Chinese government to extend the repayment terms of loans from 10 to 20 years, with progress being made.
Regarding taxes on electricity bills, the Federal Board of Revenue (FBR) currently collects Rs800 billion annually, but the Power Division has requested a reduction to Rs300 billion, which would help further reduce tariffs by Rs5 per unit.
So far, the government has saved Rs400 billion in future capacity payments by terminating contracts with five IPPs and another Rs200 billion through revised contracts with bagasse-based power plants. Once the Take-and-Pay agreements with the 18 IPPs are finalized, total savings could reach Rs800 billion.
These agreements are expected to lower tariffs by Rs0.70 to Rs1 per unit, with total savings of Rs70-100 billion. Under the new model, the 18 IPPs will receive past capacity payments, interest, and a readjustment of excessive profits.
The operational IPPs under the new Take-and-Pay model include Uch-I Power Limited (586 MW), Liberty Power Daharki Ltd (235 MW), Kohinoor Energy (131 MW), and others.
In response to queries, the official noted that Halmore Power Generation Company and Orient Power Company have issued notices regarding contract revisions. However, discussions are ongoing and are expected to reach an agreement on the Take-and-Pay model soon.
