The federal cabinet on Tuesday approved the power division’s recommendation to revise the negotiated settlement agreements with 14 independent power producers (IPPs) aimed at reducing electricity costs and saving Rs1.4 trillion for the national exchequer.

In October, the government prematurely terminated power purchase agreements with five of the oldest IPPs with the move projected to save Rs411 billion. This was followed by settlement agreements in December with eight IPPs running on bagasse, aiming to reduce electricity tariffs and save around Rs240bn for the national exchequer.

The government has undertaken extensive power sector reforms, including suspending gas supply to captive power plants, fast-tracking the Competitive Trading Bilateral Contract Markets and renegotiating contracts with IPPs. These steps aim to curb the growth of circular debt in the power sector and reduce the burden of capacity payments on the government and consumers.

A meeting of the federal cabinet was held under the chairmanship of Prime Minister Shehbaz Sharif at the PM House today.

After discussion with the 14 IPPs under the revised agreements, the cabinet approved the recommendation of reductions of Rs802bn in terms of profit and cost for them. An amount of Rs35bn in excess profits from previous years will be deducted from these IPPs.

The meeting’s members were briefed that of the 14, 10 IPPs operated under the 2002 Power Policy while four others were established under the 1994 Power Policy. The attendants were further told that an agreement with one IPP from the 1994 policy had already been previously cancelled.

The revised agreements were projected to save the government Rs1.4tr over their applicable duration, with annual savings of Rs137bn that would benefit power consumers, the meeting’s participants were informed.

The prime minister lauded the achievement, highlighting that it would reduce circular debt, lower electricity prices and lead to significant national savings.

On conclusion of the successful revised agreements, he appreciated the performance of the power minister, adviser and secretary, and the members of the task force that was established in this regard.