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Introduction
In a recent Senate Standing Committee on Energy meeting, Energy Minister Awais Leghari highlighted a dramatic increase in electricity costs from Independent Power Producers (IPPs), with unit prices soaring from Rs. 3 in 2016 to Rs. 285, marking a staggering 9600% rise over eight years. This revelation underscores significant concerns about the current structure and agreements with IPPs.
Concerns Over IPP Agreements
The meeting, chaired by Senator Mohsin Aziz, addressed mounting concerns regarding IPP agreements. Minister Leghari revealed that the government would cease purchasing electricity directly from these producers. Instead, consumers will now buy electricity directly from the producers, a move aimed at increasing transparency and reducing costs. This shift reflects growing frustration with the existing system, which has been criticized for its inefficiency and high costs.
The chairman of the committee called for a forensic audit of the IPP agreements, highlighting issues such as capacity charges and the underperformance of power plants, which are operating below 70-80% of their capacity. These discrepancies, especially when compared to regional agreements established during the inception of these IPPs, have fueled public protests and dissatisfaction.
Government’s Response and Future Plans
Minister Leghari assured that detailed information would be provided in the next committee meeting, emphasizing that previous governments were well aware of the issues at hand. He expressed confidence in the government’s transparency, stating that there is no need to conceal any information.
Senator Shibli Faraz voiced concerns about potential fraud among IPPs and criticized the Ministry of Energy for contributing to the country’s economic woes. He pointed out that Pakistan produces some of the most expensive electricity in the region, further aggravating the economic burden on consumers.
Capacity and Production Issues
The Energy Secretary provided additional insights, noting that while the current installed capacity is 42,000 megawatts, retirements have reduced this to 39,600 megawatts. Despite a capacity to produce 236 billion units of electricity annually, only 132 billion units are produced due to low demand. Payments to IPPs are based on conditions rather than installed capacity, with five plants scheduled for closure.
The Secretary also highlighted that 86% of consumers use less than 200 units of electricity, with a bill of Rs. 19,000 for those using 350 units. The government subsidizes KE’s electricity production by Rs. 170 billion to standardize tariffs, indicating a significant financial burden.
Future Outlook
Looking ahead, the Energy Minister disclosed plans to sell the Nandipur and Guddu power plants. He admitted that the government lacks complete data on these assets but reiterated that future electricity purchases would not be made by the government, aligning with the new policy to allow direct consumer purchases.
Leghari also pointed out the rising costs at the Sahiwal Power Plant, where the unit cost has surged from Rs. 3 in 2016 to Rs. 285, primarily due to capacity charges required to keep the plant operational around the clock. This increase underscores the challenges of maintaining cost-effective electricity production while managing the financial demands of existing power agreements.
Conclusion
The Senate meeting underscores significant issues within Pakistan’s electricity sector, including soaring costs and inefficiencies in IPP agreements. As the government navigates these challenges, the shift towards direct consumer purchases and the potential sale of key power plants represent critical steps in addressing the sector’s financial strain and improving transparency.
