Leghari rules out unilateral termination of IPPs contracts over risk of ‘Reko Diq-like situation’

Federal Minister for Power Awais Leghari has said that it is not possible for the government to unilaterally terminate agreements with the independent power producers (IPPs) as such a decision will create a “Reko Diq-like situation” for the country. 

In 2019, Pakistan managed to escape a penalty of $11 billion after reaching out-of court settlement with Barrick Gold on the Reko Diq project in the Chagai district of Balochistan.

Under the out-of-court deal, an $11 billion penalty slapped against Pakistan by a World Bank arbitration court and other liabilities were waived.

While responding to different questions at the Senate’s Standing Committee on Power on Friday, Leghari argued against unilaterally ending these power purchase agreements with the IPPs blamed for massive power tariffs, saying that the contracts have a sovereign guarantee cover.

The minister said this while responding to Senator Mohsin Aziz, chairman of the standing committee, who called Leghari’s statements “disappointing”.

Lehgari further clarified that the government will not take any step related to the IPPs without mutual consent, adding that a task force, chaired by him, is reviewing the IPPs issue.

Replying to a question, he said that IPPs are already in court over the Muhammad Ali report, calling it a “pandora’s box”.

“We want to put an end to [contracts with] IPPs which we do not need any longer. However, we cannot do it unilaterally,” the power minister said, responding to a query from Haji Hidayatulla Khan, a member of the standing committee.

However, he vowed to give good news in the future as work in this regard is in progress.

In his argument with former caretaker minister Dr Gohar Ejaz on a social media platform last month, Leghari said that the government was studying the current IPP contracts and planning to generate more electricity from cheaper sources.

PPAs with IPPs, made under various regimes without careful consideration of the potential consequences, are the primary cause of Pakistan’s power crises.

Owing to these IPP contracts, energy users already receive the worst form of invoices in the world, with taxes and capacity fees accounting for 70% of their bills, according to power sector analysts.

The country in the past 15 years has suffered losses of nearly Rs5,082 billion due to the governments’ failure to control the menace of circular debt, totalling an annual loss of Rs370 billion.

Since July 2018, the power purchase price has climbed by 95.82%. The spanning period of these IPPS will end around 2050.