Government Cancels 10,000MW Projects to Reduce Costs

Government Cancels 10,000MW Projects to Reduce Costs

ISLAMABAD: The government announced on Thursday that it had achieved savings exceeding Rs1.1 trillion by renegotiating contracts with current independent power producers (IPPs) and decided to reject around 10,000MW of new IPPs due to their high costs and unaffordability.

During a seminar on hydroelectric power held in Islamabad, Power Minister Awais Leghari stressed the importance of making bold choices to tackle inefficiencies in the energy sector. He criticized K-Electric’s proposal for a tariff hike to Rs10.5 per unit over the next seven years. He dismissed electricity generation projects like the $14 billion Diamer-Bhasha Dam because of their excessive consumer costs.
The minister also indicated a possible overhaul of the taxation framework on electricity bills and the discontinuation of a uniform tariff system nationwide to “motivate everyone to improve” rather than fostering inefficiencies in the sector. “We are actively considering reducing prices by modifying the taxation structure,” he stated.
“All stakeholders must make courageous decisions for a brighter future,” the minister remarked, noting that this includes parliament members and politicians who might face difficulties for a year or two. “No nation globally has a uniform power tariff,” he mentioned.
The minister affirmed that the government possesses the “legal authority” to terminate 10,000MW of projects from a proposed 17,000MW without financial closure.
“We will utilize this authority,” regardless of whether any firm has received a letter of support (LOS). “We will remain unfazed by any pressures, whether it involves 1,000MW, 3,000MW, or a G2G [government-to-government] offer,” he added.
However, he noted that projects that have achieved 40 to 50 percent physical progress and those that have achieved financial closure will continue. Similarly, provincial projects with existing financial commitments will also be preserved.
Mr. Leghari stated that all upcoming energy contracts will focus on cost-effective electricity. Demand will determine the technologies used, and power supply lines will guide where future plants should be situated within the power system. The final selection will be determined by competitive bidding, with private investors assuming the related risks.
Impact on the Diamer-Bhasha Dam
He mentioned that the power ministry had undertaken various initiatives and scrutinized all projects planned for the next decade, including the Diamer-Bhasha Hydropower Project, nuclear power initiatives, and renewable projects, based on their consumer and economic viability.
He pointed out that only 87MW out of 17,000MW planned under the indicative generation expansion plan for the next decade meet the criteria for inclusion in the system based on cost-effectiveness.
“Our nation and consumers can no longer sustain this costly energy,” he stated, adding that the government should finance any projects considered for strategic purposes through the development program without burdening consumer costs.
While recognizing the Diamer-Bhasha Dam’s benefits for storage and flood control, Mr. Leghari remarked that the accompanying $3 billion transmission costs and power generation expenses would heavily burden consumers.
He warned that including electricity from the dam in tariffs would drive the national power rate up by Rs5 per unit, emphasizing that the government is presently negotiating with IPPs for savings of Rs1 or Rs1.5 per unit.

The minister also highlighted the high costs associated with other projects, including the Gwadar Coal project and the Azad Pattan and Kohala hydropower initiatives. “Therefore, a fundamental decision has been made” that future capacity expansion will be determined solely by technology, demand, transmission lines, and tariffs. He stated that the government, or its agency — the Central Power Purchasing Agency (CPPA) — will not purchase all energy and assume all risks.

Competitive electricity market
He mentioned that the competitive electricity market would be launched in March, and this transformation would allow the private sector to make independent decisions. “Consider how it would be if the IT minister had to make choices for Telenor, Ufone, or Mobilink,” he said, emphasizing that no government or power minister could make decisions as efficiently as the private sector.

The minister also revealed that the government plans to adjust the net-metering rates for “wealthy and elite” consumers who are currently compensated at Rs21 per unit, including a capacity charge. They would only receive payment for the energy price, changing their full cost recovery timeframe from the current 18 months to roughly four-and-a-half years.

He noted that energy expenses have become too high, prompting people to turn to alternative sources due to these costs. In the next five years, he added that consumers with net metering could sell their battery-generated electricity to other consumers and the grid.

The minister mentioned that governance reforms in the power sector are yielding positive results. He pointed out that the boards of eight out of ten distribution companies have been changed without political interference, which has led to a decrease in losses from Rs223bn last year to Rs170bn during July-November this year. If the boards of the remaining two companies had been changed, losses could have been further reduced to Rs140bn, as these two companies contributed an additional Rs30bn in losses compared to last year.

Mr. Leghari stated that his ministry intervened at the last minute before Nepra was about to issue a multi-year tariff for K-Electric, which had requested a Rs10.5 per unit increase for seven years. “We removed” all the components and determined that the increase in its tariff should be under Re1 per unit instead of Rs10.5. “This was a task for the regulator,” the minister remarked, performed by the power division, and expressed hope that the regulator would recognize the actual circumstances.