Two-pronged strategy to tackle energy costs, debt

ISLAMABAD: According to authorities, the Pakistani government is preparing a comprehensive strategy to address the country’s rising energy expenses and growing cyclical debt load in the electricity industry.

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Prime Minister Shehbaz Sharif’s task team is meeting on a daily basis to develop a plan to cut the generation rates of Independent Power Plants (IPPs), which have played a big role in the country’s rising power bills. According to people familiar with the situation, the administration is simultaneously working with China to obtain debt restructuring and switch power facilities to coal fuel.

The discussions have mostly focused on exploring methods to address generating tariffs imposed by IPPs, which have long stressed the national grid. The high rates imposed by prior agreements with IPPs have considerably contributed to growing power costs, which the government is eager to ease. “The agreements with IPPs will be reviewed with mutual consultation,” sources stated, emphasizing the collaborative approach to contract revisions.

In a parallel attempt, Pakistan is working with Chinese officials to get debt relief through debt reprofiling, which entails extending the payback terms on current loans. These discussions are critical since Pakistan’s financial commitments to China, particularly those related to energy projects under the China-Pakistan Economic Corridor (CPEC), have played a key role in the country’s debt problem.

In addition to these steps, the government is moving forward with plans to privatize certain electricity distribution businesses (Discos) in order to increase operational efficiency and customer service. Leghari stated that the privatization process will be gradual, with the most efficient Discos sold to private investors first.

Minister for Power Awais Ahmad Khan Leghari, who leads the task team, recently declared “positive developments” in talks with China. The discussions also include the conversion of power facilities to coal, which has the potential to cut energy producing costs.

He Leghari informed the people that the government is taking every conceivable step to address electricity sector difficulties and bring relief to customers, promising more positive news in the coming weeks.

According to reports, Prime Minister Shahbaz Sharif has already written to the Chinese government demanding assistance through debt reprofiling to alleviate Pakistan’s financial hardship. The conversations with China are viewed as a vital step in managing the country’s debt load and securing more favorable repayment conditions.

Following a recent meeting of the National Task Force on the Implementation of Structural changes in the Power Sector, Leghari reaffirmed the government’s commitment to comprehensive changes that would increase efficiency. The task group assessed all IPP stocks and generation capacity, as well as the difficulties facing the energy sector.

“The key objective is to reduce electricity prices to benefit consumers,” Leghari said me. He refuted speculations of an increase in power rates for August, adding that the task committee had strongly opposed such allegations. Contrary to predictions of an increase, the power tariff was decreased by 77 paisa per unit, he stated.

On Thursday, NEPRA issued a notification for the June fuel cost adjustment (FCA), which fixed the adjustment for August’s billing at Rs2.56 per unit, down from Rs3.33/unit in July billing. According to Leghari, this reduction saves customers 77 paisa per unit.