Dr. Gohar Ejaz, the former Caretaker Minister for Interior and Commerce, has voiced strong criticism over the exorbitant electricity tariffs in Pakistan, attributing them to flawed contracts with Independent Power Producers (IPPs). In a statement on Thursday, Dr. Ejaz highlighted that the actual power tariff should be below Rs. 8 per unit, yet consumers are being charged Rs. 60 per unit.
Dr. Ejaz took to X (formerly Twitter) to express his concerns, stating, “Why Rs 2 trillion capacity payment was paid to power plants last year, which is costing all consumers Rs 24 per unit when the actual cost should be below Rs 8 per unit? Payments were made for idle capacity to IPPs; they should be paid only for power produced and delivered to the National Grid.”
He emphasized the unsustainable nature of the existing contracts, which include “Take or Pay” conditions that mandate capacity payments even when electricity is not produced. “These contracts with IPPs need to be canceled. Electricity tariffs of Rs. 60 or 21 cents do not exist anywhere in the world,” he added.
Dr. Ejaz proposed that if electricity is purchased from the cheapest suppliers without capacity payments and treated as merchant suppliers, the prices could drop below Rs. 30 per unit instead of the current Rs. 60 per unit.
According to the National Electric Power Regulatory Authority (NEPRA)’s July 2023 order, fixed capacity payments were projected to total Rs. 1.954 trillion for the fiscal year 2023-24. The breakdown of these payments is as follows:
- Coal (All CPEC): Rs. 692 billion
- Nuclear (100% Government): Rs. 443 billion
- Hydel (90% Government): Rs. 282 billion
- RLNG (75% Government): Rs. 185 billion
- Wind (30% CPEC): Rs. 175 billion
- Furnace Oil (10% Government): Rs. 65 billion
- Solar/Gas/Bagasse (All): Rs. 112 billion
The actual payment for FY24 is now estimated to end at Rs. 2.112 trillion. Dr. Ejaz noted that capacity payments have increased due to foreign exchange movements, high-interest rates, and the unnecessary addition of capacity to the system.
He further pointed out that the generation in FY23 was 47 percent reliant on imported fuels and is expected to remain the same. Dr. Ejaz’s remarks underscore the urgent need for reform in Pakistan’s power sector to alleviate the financial burden on consumers and ensure sustainable energy pricing.