Power Minister Awais Leghari on Friday reiterated that the government cannot unilaterally terminate agreements with independent power producers (IPPs), as this risks inviting legal challenges that can lead the country to a “Reko Diq-like situation.”
In 2019, an international court imposed an $11 billion penalty on Pakistan that the country narrowly avoided after reaching an out-of-court settlement with Barrick Gold on the Reko Diq project. Under the deal, the penalty was waived and the project revived.
Appearing before the Senate Standing Committee on Power, Leghari stressed that most power purchase agreements with IPPs have a sovereign guarantee cover. He said the government would not take any action against IPPs without mutual consent, adding a task force was reviewing the issue.
To a question, he said IPPs were already in court over the Muhammad Ali report, warning it risked opening up a Pandora’s Box. “We want to put an end to [contracts with] IPPs which we do not need any longer,” he said. “However, we cannot do it unilaterally,” he reiterated, adding that he hoped to give good news on this front in future as talks continued.
During his briefing, Leghari said the government would not undertake any new project for the next 10 years, adding only those already in the pipeline would be completed. To a question on the government’s plans for negotiations, he explained that a detailed review would enable the government to determine if any expensive plants were nearing the end of their contract and these could be offered a net value of their contractual return for their remaining period. Others, he explained, could be shifted to take or pay or take and pay models.
However, he warned, this must proceed methodically, as even shutting 1875MW worth of expensive power could result in two hours of load-shedding in peak summer while only saving Rs. 50 billion.
The IPP contracts have taken on an outsized role in the popular imagination as electricity bills have soared, with critics noting that the country is now paying more in capacity charges than actual power generation costs.