Power sector woes – Taking the economic power away


Pakistan’s power projects have few components; energy (variable fuel cost) & capacity (fixed “guaranteed” profits). While the former has softened in wake of falling Coal, Oil & RLNG prices, the devil lies in the detail. Total yearly capacity payments are increasing from Rs ~1trn ($6bn) to Rs ~1.7tr ($10bn) in 5 years. No, the govt wouldn’t pay, you & I (consumers) would.

The talks between govt & IPPs are ongoing where the govt negotiates on a) increase in debt repayment period b) reduction in spread over LIBOR c) reducing IRRs d) moving away from USD to PKR indexation & e) clawback mechanism sharing efficiency. Even if a) & b) are done, the electricity prices could reduce by Rs 1/2 per unit. Not bad. Take it.

IPPs can always be coaxed to a middle ground but they have a solid sovereign agreements to take it to international courts also. However, some settlement is due.

It is a long, painful & investor-irking process. While we try to privatise RLNG plants, who would buy them when there is a ? over their agreed terms. Perhaps, better to reduce their IRRs & restructure CPEC projects quietly. Govt may have to settle for whatever ground they capture. Close the chapter, pursue another.


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