By our correspondent
Ag APP
ISLAMABAD: The federal cabinet, chaired by Prime Minister Shehbaz Sharif, approved revised agreements with 14 Independent Power Producers (IPPs) on Tuesday, shifting to a ‘take and pay’ model.
This move is expected to slash the cost and profit of these IPPs by a staggering Rs802 billion, potentially easing the financial burden on the country. Under the revised agreements, the government will deduct Rs35 billion from the ‘unfair’ profit of these IPPs. The government will get a benefit of Rs1.4 trillion till the previous agreements remain enforced and their benefit will be passed on to electricity consumers.
As many as 10 out of 14 IPPs were producing electricity under the accords signed in 2002 and four IPPs according to the 1994 power policy. “There will be annual savings of Rs137 billion as a result of agreements,” the cabinet was informed. This would have an impact of Rs1.37 per unit per annum. Negotiations with one IPP has been completed whereas talks with three are underway. Shehbaz termed the revised IPP agreements a big success which would not only lessen the burden on the national kitty but would also reduce the circular debt and the cost of electricity. He congratulated the minister, secretary power and members of the relevant task force on the success.
Under the revised contract, RoE (return on equity) payments will now be exclusively in Pak rupees, replacing the previous US dollar-based indexation system. The fixed RoE rate has been set at 17pc, based on an exchange rate of Rs168 per US dollar. The newly agreed financial model will dramatically reduce future capacity payments and recoup “excess profits” previously earned by the IPPs under fuel costs and other expenditures. The renegotiations also led to the elimination of the ‘take-or-pay’ structure, which guaranteed IPPs fixed payments, regardless of actual electricity generation. Instead, future RoEs will be based on actual energy generation, with a minimum threshold to ensure operational sustainability. There could be an overall impact of Rs11-12 per unit if the government can clinch an agreement to increase the loan tenure for power plants set up under CPEC. The overall impact also depends on the success of government parleys with government power plants by reducing their taxes and those with renewable energy. Earlier, Prime Minister Shehbaz Sharif underlined the need for strong coordination between the federal and provincial governments to enroll the 22.8 million out-of-school children and achieve other objectives of the recently launched Education Emergency.
In his opening remarks at the federal cabinet meeting, the prime minister said the federal government should aggressively work with the provincial governments to address the challenge of out-of-school children with the majority of them being girls. He directed the federal education minister to enhance coordination with the provinces in the education sector.
Shehbaz also appreciated the resumption of Pakistan International Airlines (PIA) flight operations to Paris and termed it a great achievement. He expressed the hope for resumption of flight operations to London as the government was expanding PIA network routes. Commenting on the new Pak-Iran border crossing in Panjgur, the prime minister extended his gratitude to the Government of Iran for cooperation as it would help further curb smuggling and promote legal trade.
The prime minister told the cabinet members that the situation in Kurram had improved as the bunkers earlier set up by warring groups had been removed and supplies of essential items revived. “All stakeholders together will maintain peace and strive to suppress violence among the groups,” he remarked.
The armed forces, he said, under the leadership of Army Chief had initiated anti-terror activities against Fitna Al Khawarij (terrorists). In a recent intelligence-based operation, 27 terrorists were eliminated and many other IBOs were going on across the country as “the security forces rendered great sacrifices that will result in the end of Fitna Al Khawarij. History will reckon these sacrifices in golden words.”
The cabinet also okayed the merger of Anti Narcotics Division and Aviation Division with the Ministry of Interior and Ministry of Defence respectively. There will be an estimated annual saving of Rs183.250 million in heads of administration, maintenance, salaries and other operational expenses. The merger will also help save Rs145 million annually. The federal cabinet also approved the insertion of section 45-A in Public Procurement Rules 2004. It also approved an extension in the contract tenure of Dr Muhammad Bashir as Member (Technical) Environment Division for two years.
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