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ISLAMABAD: Faced with looming capacity trap, the government decided on Tuesday to make a major shift in its energy policy and decline guaranteed power purchases from future private sector producers.

The decision was taken at a meeting of the Cabinet Committee on Energy (CCoE) chaired by Prime Minister Shahid Khaqan Abbasi and attended by Minister for Power Sardar Awais Ahmed Khan Leghari, Minister of State for Petroleum Jam Kamal Khan, secretaries of the divisions concerned and the managing director of Pakistan State Oil.

The meeting discussed threadbare various policies including power co-generation by sugar industry and the renewable energy policy 2006. It also reviewed various power sector development projects which are being set up to diversify the existing energy mix of the country including wind, solar and hydel power projects.

“It was decided to introduce suitable amendments to the existing policy framework in order to address various issues relating to power tariff,” said an official statement.

The meeting decided that agreements with the private sector investors by the government would be based on “take and pay”. This means the government would pay only for the units drawing from the private projects and would not be bound to pay for the capacity availability. This would primarily impact small renewable sector projects like small hydropower and baggase-based projects and others not considered as ‘base load projects’.

Conversely, the government will only guarantee power purchases from projects being executed by public sector entities on “take or pay” basis. This means the government would be responsible for capacity payments as well as energy payments of an available plant even without actually drawing electricity as is the case at present. This will protect power projects currently under implementation and those coming up under the China-Pakistan Economic Corridor (CPEC).

Simultaneously, the government would do away with upfront tariffs offered to existing projects and replace it with competitive tariff regime already being implemented by the National Electric Power Regulatory Authority (Nepra) in selective areas.

“Why should the government guarantee power purchases, it should be based on demand and supply,” Mr Leghari briefly spoke on the subject in Senate. He said the government was working with the Securities and Exchange Commission of Pakistan (SECP) to ensure that electricity was traded like any other commodity within six months period.

He said the revised National Electricity Policy and National Electricity Plan would be shortly presented to the Council of Common Interests (CCI) for consideration. Under the plan, it has been decided that power capacity should be enhanced every year on the basis of demand and supply situation and taking into account the need for various sources – hydro, solar, gas, LNG, coal, nuclear and so on – into the energy mix to ensure that procurements are not forced like emergencies.

He said the additional power capacities would be procured on competitive bidding and their contracts period would also be set around 15 years instead of existing agreements for 25-30 years.

He said the prices secured for power procurement from coal and LNG based projects were now lowest in the world and the relief in electricity rates should have reached the consumers by now at the rate of Rs2 per unit but was going down the drain as Rs135 billion worth of electricity was being wasted and huge costs were being borne by the consumers for net hydel profits to provinces.

Published in Dawn, December 13th, 2017