Govt eyes Rs8 per unit power tariff cut in two months

ISLAMABAD: The government is negotiating with nearly four dozen renewable independent power producers (IPPs) and also the state-owned generation plants to cut the electricity tariff by up to Rs8 per unit within next two months, a senior Power Division official said on Monday.

In a parallel effort, officials plan to engage the International Monetary Fund (IMF) next month to seek approval for reducing taxes on the electricity bills, including 18% General Sales Tax (GST), which significantly burdens the consumers.

Since Pakistan is under the IMF’s Extended Fund Facility (EFF), unilateral tax reductions are not possible, Secretary Power Division Dr. Fakhre Alam Irfan informed a parliamentary panel. “Our discussions with the IMF are scheduled for the first or second week of March,” he said.

The Senate Standing Committee on Power that met here with Senator Mohsin Aziz in the chair to review the ongoing negotiations with the IPPs, forensic audits, and the government’s privatization strategy for power distribution companies.

Meanwhile, the government has warned the IPPs, particularly the wind power plants, that refusing negotiations will result in forensic audits. Halmore Power Co. Ltd. is already under scrutiny.

Special Assistant to the Prime Minister (SAPM) on Power Muhammad Ali told the Senate Standing Committee on Power that discussions with 45 renewable energy plants — including wind and solar — will conclude in 1.5 months, ensuring no impact on their lenders.

The government has previously revised agreements with multiple IPPs, shifting their returns from dollar to rupee and modifying take-or-pay contracts to hybrid take-and-pay models, and reducing their return on equity from a 100pc plant factor to 35pc. He added that agreements with six IPPs had been terminated. Earlier, the government was paying between Rs70 billion and Rs80 billion annually for these power plants.

We have recovered Rs35 billion what was given to these IPPs extra under fuel and O&M costs, he said. To tackle the Rs2.3 trillion circular debt, the authorities are in talks with banks to secure a Rs1.24 trillion loan at a fixed rate.

Power Minister Awais Leghari noted that since June 2024, the electricity costs had dropped by Rs4 per unit for domestic consumers and Rs11.5–12 for industrial users, with further reductions expected as negotiations progress.

To a question, Leghari refuted the rumors that the government did not intend to impose tax on solar in near future. Senator Shibli Faraz said there had been rumors of arm-twisting with the power producers while negotiating the terms and conditions.

Rejecting the claims of forced compliance, Muhammad Ali said, fault lines of power producers were highlighted during the negotiations. Some had invested in stock market and real estate.

“We have not pressured or coerced any IPP into agreements,” he said. Senator Shibli Faraz questioned why no forensic audit of the IPPs had been conducted despite billions being paid to them.

“IPPs have extracted massive sums through fuel inefficiencies and deceptive efficiency claims,” Faraz said. Ali said Pakistan lacked the expertise and funds for forensic audits of 50 to 60 power plants, noting that no budget was allocated for it in 2020.