Pakistan has saved Rs411 billion through the early termination of contracts with five independent power producers (IPPs), Federal Energy Minister Awais Leghari announced in a media briefing. The decision reflects a significant strategic shift in the country’s approach to power generation, payments, and fuel supply.
During the briefing, Awais Leghari detailed the government’s negotiation outcomes, confirming that previous payments—including capacity charges, energy costs, and insurance fees—will be made to the IPPs. However, no further payments or compensations will be provided following these settlements. The government will also not face fines for the early termination, nor will it compensate for the companies’ equity or future expected returns from these agreements. Additionally, any late payments on payables will not be settled.
The Federal Minister noted that the move signifies a broader shift in the government’s energy strategy. Power generation projects and agreements will undergo restructuring, leading to potential savings and efficiency gains for Pakistan’s energy sector.
Hub Power Company and Lalpir Power Among Key Players
The Directors of Hub Power Company Limited (PSX: HUBC) have already initiated a Negotiated Settlement Agreement with the government regarding the accelerated termination of contracts set to expire on October 1, 2024. Originally scheduled to end in March 2027, these agreements relate to the company’s 1,292 MW power generation project in Baluchistan. The government has also agreed to settle the company’s outstanding receivables up to October 2024.
Lalpir Power Limited (PSX: LPL) held an emergent board meeting to discuss the terms of its contract terminations with the Government of Pakistan. These contracts, including the Implementation Agreement, Power Purchase Agreement, and Fuel Supply Agreement, were originally set to expire in November 2028. The Board decided to seek shareholder approval for early termination at an upcoming Extraordinary General Meeting.
Disputes Over Capacity Payments
Despite the agreement between the government and IPPs, some power producers have expressed dissatisfaction with the negotiations, citing disputes over capacity payments and concerns about government defaults. These disputes are expected to continue as the government pushes for renegotiation of terms to alleviate the financial burden on the national exchequer.
The early termination of these power agreements is seen as a critical step in reshaping Pakistan’s energy policy, potentially unlocking further savings and fostering greater efficiency in the sector. However, the full impact of this decision will become clearer as the negotiations conclude and new agreements are put in place.
