Renegotiating IPPs: Compensation, Take-and-Pay, and the Credibility Test

By early December 2024 the renegotiation of Pakistan's independent power producer contracts had moved from task force talk to signed terminations. The government ended power purchase agreements with Hub Power, Lalpir Power, Pakgen Power, Roush Power, Saba Power and Atlas Power with effect from 1 October 2024, according to the official record of installed capacity. The IMF's September staff report for the new Extended Fund Facility put the problem in one line: capacity payments account for about 60 per cent of generation costs.

Under the programme, the government committed to settle up to PRs 263 billion of arrears to IPPs and government-owned generators in FY25 on revised PPA terms, paid in floating-rate Pakistan Investment Bonds and sukuk. Moving a plant to take-and-pay means it is paid mainly for energy actually dispatched. The government should publish the valuation method, the settlement amounts and the revised tariffs for every renegotiated plant. The relief should show up as a lower capacity component in NEPRA's quarterly adjustments.