10 IPPs Now Want to Terminate Their Contracts Over Unfair Terms

Ten Independent Power Producers (IPPs) established under Pakistan’s 2002 Generation Policy have approached Prime Minister Shehbaz Sharif and are looking to terminate their sovereign contracts over unfair terms. The IPPs, which include major players like Pakgen Power, Nishat Power, and Hubco Narowal, have claimed that the government has unfairly blamed IPP capacity payments for high consumer tariffs, reported Business Recorder. The letter was submitted just ahead of scheduled negotiations for changing IPPs’ Power Purchase Agreements (PPAs) from a “Take or Pay” model to a “Take and Pay” approach. This proposed shift would make IPPs bear significant fixed costs without any guaranteed power purchase from the government, an arrangement IPPs view as financially unviable. They argue this shift would push private power firms toward bankruptcy. The IPPs argued that attributing this entirely to capacity payments is misleading. They explained that consumer tariffs are driven by factors such as high taxes, distribution losses, and currency depreciation, with less than half of the IPP capacity payments going to privately owned IPPs. In their letter, the IPPs offered four conditions for terminating their contracts, including full settlement of past dues, permission to sell power to private buyers, and a guarantee of continued LNG supply. The IPPs said that a meaningful reduction in consumer tariffs requires systemic reforms in power distribution, tax reduction, and increased sales rather than further cuts to capacity payments. They have requested the Prime Minister to convene an urgent meeting with stakeholders to reassess the current negotiations and address these longstanding issues.