Industry Leaders Demand Lower Power Tariffs and IPP Contract Revisions

KARACHI – Trade and industry leaders, frustrated by high capacity payments to independent power producers (IPPs), have urged the government to review power purchase agreements and reduce the electricity tariff to 9 cents per unit to ensure the survival of industries.

Industry’s Call for Action

At a press conference held at the Korangi Association of Trade and Industry (KATI) office on Saturday, KATI President Johar Ali Qandhari, along with other officials and former presidents, highlighted the excessive payments to IPPs. They noted that these payments exceed the nation’s defense budget and called for prioritizing the interests of Pakistan’s 240 million citizens over the 40 families running the IPPs.

Demand for Contract Cancellations and Audits

Qandhari demanded the cancellation of contracts with unnecessary private companies and a forensic audit of IPP financials. He questioned whether the interests of a few should outweigh those of the entire population. Despite having an installed electricity production capacity of 45,000 megawatts, only 22,000 MW are utilized. Industrial consumers face a high electricity cost of Rs35 per unit before tax, which rises to Rs60 after tax. Out of this, Rs18 per unit is paid in capacity charges for unused electricity, significantly harming the economy.

Economic Impact and Proposed Solutions

The KATI chief stated that Rs2,000 billion would be paid in capacity charges, putting severe economic pressure. He proposed revising the capacity conditions for government-owned IPPs, which make up 45% of the market, to reduce management costs and shift payment terms from the London Interbank Offered Rate (Libor) to the Karachi Interbank Offered Rate (Kibor). He also suggested renegotiating contracts with privately owned IPPs, which constitute 25% of the market, to adopt “Take and Pay” agreements instead of “Take or Pay.”

Advocating for an Electricity Market

Qandhari called for the establishment of an electricity market in Pakistan, urging the government to step back from electricity production and purchase, allowing private companies to foster competition. He emphasized that consumers should have the option to choose their electricity provider, enabling them to select companies offering better terms and lower rates. He also advised halting new IPP projects and improving capacity through negotiations with existing IPPs.

Government’s Role and Industry Concerns

Federal Minister for Energy Sardar Awais Laghari has been asked to review the IPP contracts and make these agreements public, alongside conducting financial audits by international companies. FB Area Association of Trade and Industry (FBATI) President Syed Raza Hussain urged the government to take decisive action to terminate or renegotiate agreements with power producers, ensuring fair and sustainable tariffs for both consumers and businesses.

Urgent Revisions Needed for Economic Goals

United Business Group (UBG), Sindh Zone, Chairman Khalid Tawab appealed to the government to revisit IPP agreements, reduce electricity tariffs, and support the survival of industries and exporters. He warned that achieving the revised tax collection target of Rs12.9 trillion and the export target of $100 billion by 2030 is nearly impossible due to the high power tariffs imposed by IPPs.