The cancellation and revision of IPP agreements have saved the government trillions of rupees. The cancellation of these agreements resulted in savings of over 3,000 billion rupees.
According to a report citing sources in the Ministry of Energy, despite pressure, agreements with several IPPs were canceled, and their cancellation and revision resulted in savings of 3,600 billion rupees.
The report stated that 20 years ago, expensive power agreements were made with 40 IPPs. Despite not generating electricity, billions of rupees were paid under capacity charges. Due to these costly IPP agreements, 3.6 trillion rupees annually were being extracted from the public’s pockets.
In this regard, the industrial community has said that 40 families kept the country hostage by making IPP agreements, and action should be taken against those who received billions despite their power plants being closed.
It should be remembered that the agreements made with Independent Power Producers (IPPs) in Pakistan have caused long-term negative effects on the country’s economy. The nature of these agreements was such that they directly imposed a financial burden on the public, while a few specific investors received extraordinary profits.
In these agreements, the Government of Pakistan guaranteed “Capacity Payments” to IPPs — meaning payments based on capacity, whether or not electricity was actually generated. Under this system, even when electricity demand was low or the government was not in a position to purchase power, billions of rupees continued to be paid to these companies from the public treasury.
Furthermore, most agreements included a clause for payments to IPPs in U.S. dollars. When the value of the rupee depreciated, the government had to make the same payments at a much higher cost. As a result, electricity tariffs were increased, putting severe financial pressure on ordinary consumers, industries, and the business community.
Reports by the Auditor General and investigative commissions also identified excessive profits, alleged corruption, and lack of transparency in these agreements. In many projects, production costs were overstated, and some companies earned profits many times higher than their actual investment.
