The government is proposing significant changes in the power sector in order to reduce electricity tariffs for both industrial and domestic consumers. Experts and officials have recommended 24 conditions for transitioning from the current capacity-based model to a take-and-pay model in negotiations with Independent Power Producers (IPPs). This transition is meant to result in new agreements with IPPs and ultimately lower the end tariffs for consumers.
According to high-level sources, the proposed deal is close to finalization, and top officials from several IPPs recently met with authorities in Islamabad to discuss the proposed changes. The message conveyed during this meeting emphasized that the current electricity tariff levels are not sustainable for consumers and industry, and that power generators need to cooperate with the government to address this issue.
To support the proposed changes, technical experts have thoroughly reviewed documents from power plants, aiming to identify any loopholes related to fuel procurement, machinery and equipment imports, and other associated costs. Additionally, the government has proposed 24 specific conditions for transitioning to the take-and-pay model, including significant reductions in operation and maintenance costs, adjustments to delayed payment rates, changes in dispatch instructions, and modifications to dispute resolution mechanisms.
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Despite the potential for significant changes, officials have indicated that it is challenging to provide a specific timeline for when these changes may be implemented. However, there is a strong indication that announcements related to tariff reductions, debt restructuring for specific power plants, and adjustments to return on equity may be made in the current month.
It’s worth noting that the power sector has raised concerns about the expertise of the individuals responsible for drafting the proposed conditions, particularly regarding their understanding of capacity payment mechanisms. Nevertheless, the government appears committed to implementing these changes in the interest of reducing consumer tariffs and ensuring the sustainability of the power sector.
