Electricity tariff hike: PBF urges govt to cancel all agreements with IPPs

KARACHI: President, Pakistan Business Forum (PBF) Khawaja Mehboob ur Rehman has called the federal government to cancel all agreements with Independent Power Producers (IPPs) and eliminate Rs2 trillion in capacity payments to prevent further economic devastation.

In an official letter sent to Federal Minister Power Awais Khan Laghari, PBF President expressed the strong concern and disappointment over the recent electricity tariff hike in Pakistan. The new tariffs will have a devastating impact on both the industry and the common man. Moreover, the agreements with Independent Power Producers (IPPs) need to be reconsidered.

The letter stated as you may be aware, the electricity costs in neighbouring countries are significantly lower than in Pakistan. In Afghanistan, the cost is approximately Rs3.92 per unit, in Bangladesh it’s Rs17.07 per unit, and in India it’s Rs6.29 per unit. However, in Pakistan, the domestic consumers are facing a significant increase from Rs5.72 to Rs7.12 per unit, with a sales tax of Rs48.84 per unit. After adjustments and taxes, the rate will exceed Rs65 per unit, putting a tremendous burden on the common man.

Similarly the significant discrepancy between Pakistan’s installed generation capacity (over 40,000MW) and its peak demand and transmission capacity was (25,000MW) this economic burden of capacity payments to IPPs for unused generation capacity. Furthermore, this discrepancy between Pakistan’s installed generation capacity and its peak demand and transmission capacity has led to excess and underutilized generation capacity. Despite this, the government is obligated to make massive capacity payments to IPPs annually, which stifles economic activities. These payments are made even when no electricity is generated or supplied.

The returns enjoyed by IPPs, exceeding 73 percent in dollar terms, are unusually high compared to international standards. These problematic contractual arrangements, stemming from the 1994 Power Policy, have led to an escalating circular debt, which reached Rs2.64 trillion in February 2024.

PBF urged the government to reconsider the agreements with IPPs and take necessary steps to reduce the electricity tariff, making it more affordable for the industry and the common man. The current hike will lead to increased production costs, reduced competitiveness, and higher inflation, ultimately affecting the economic growth of the country.

PBF President also criticized the government for its lack of visible measures to reduce the budget deficit, which the business community does not see any efforts to address. He also pointed out the absence of a plan to reduce losses of public sector enterprises in the budget.

Copyright Business Recorder, 2024