The issue of Independent Power Producers (IPPs) in Pakistan is longstanding, with power plants operating since 1994.
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The primary challenge for Pakistan stems from the coal power plants installed under the 2015 policy as they were based on Imported fuel. The plants established under the 1994 policy are nearly decommissioned, and those set up in 2002 are expected to be phased out by 2027 or a few years after.
Pakistan faces an annual capacity payment of 2000 billion rupees. Successful negotiations with IPPs may result in savings of only two and a half to three rupees per unit but with this would send a negative signal to foreign investors about Pakistan’s failure to adhere to commercial contracts. Already, one set of negotiations was held in 2021, which resulted in a reduction of the tariff of private IPPs (excluding CPEC). Another negotiations at this time would severely deter any foreign direct investment in Pakistan, especially power sector.
What is needed is to negotiate with CPEC projects to lower their tariff as they did not offer any reduction in 2021.
