ISLAMABAD:
The government has saved over Rs80 billion by revising agreements with wind and solar power producers, officials say.
The Power Division disclosed that wind power plants had been charging up to Rs42 per unit under the 2013 policy compared to Rs17 per unit being received by the wind power plants running under the cost-plus tariff regime.
The Task Force on Implementing Structural Reforms in the Power Sector successfully negotiated the termination of contracts with six independent power producers (IPPs) as well as negotiated tariff reduction and the waiver of late payment interest with the thermal IPPs and government-owned power plants (GPPs). The Economic Coordination Committee (ECC), in a recent meeting, was informed that in continuation of its efforts, the task force deliberated on renegotiating tariff structures after assessing the commercial and operational self-sustainability of 14 wind power plants and a solar power plant operating under the Power Policy 2006.
It was told that the wind power plants under the 2013 upfront tariff and cost-plus tariff till 2018 had higher rates (up to Rs42 per unit) compared to the wind power plants under the cost-plus tariff after 2018 (prices up to Rs17 per unit). Accordingly, the task force devised different negotiation strategies. It held multiple rounds of negotiations with the power plants and renegotiated tariff components aimed at reducing the future tariff liabilities.
The ECC was informed that under the Upfront Tariff 2013 Policy, three wind power plants agreed on the following principles: The fixation of return on equity (RoE) would be in Pakistani rupees at the exchange rate prevailing on the debt repayment expiry date. The operation and maintenance (O&M) component would be reduced along with rationalisation of its indexation mechanism.
The task force also reduced the cap on the insurance component along with waiver of the late payment interest and reduction in the future delayed payment rate. Additionally, the power purchaser would make payments for the outstanding payables on the execution date within 90 days of the effective date.
Based on those principles, amendment agreements were signed by the wind power plants, which would result in estimated savings of Rs38.90 billion over the life of the projects. It was highlighted that under the cost-plus tariff after 2018, 11 plants agreed on the following principles: RoE would be fixed at the exchange rate prevailing on the debt repayment expiry date and waiver of the late payment interest outstanding on the effective date. There would be reduction in the future delayed payment rate from the effective date and the power purchaser would make payments for the outstanding payables on the effective date within 90 days.
The index would be set at Rs168/USD in line with other government power plants along with rationalisation of the indexation mechanism for the O&M component and reduction in the future delayed payment rate. It was highlighted that the waiver of late payment interest had been negotiated with all GPPs and in the case of the solar IPP, wholly owned by the government of Punjab, the waiver of interest would help reduce the circular debt burden on consumers of the country.
The task force recommended that since all GPPs had waived the late payment interest, this interest should also be waived from the outstanding payables of Quaid-e-Azam Solar Power Ltd as of July 16, 2025 and the same would be incorporated at the time of signing the amendment agreement with the power plant. Those amendments would result in estimated savings of Rs45.70 billion over the life of the project.
It was further informed that for Fauji Kabirwala Power Company Ltd (FKPCL), the federal cabinet had approved the initial amendment agreement. The agreement contained a provision for the reconciliation of liquidated damages and during reconciliation it was observed that, among other things, certain liquidated damages arose from the non-supply of gas/RLNG in the 16th agreement year. It constituted an event beyond the control of FKPCL and should be treated as “other force majeure event” in line with the industry practice for the settlement of such issues and for a fair resolution of the outstanding matters.
