Govt to Close 5 Major IPPs in Energy Reforms

Prime Minister Shehbaz Sharif’s task force has successfully initiated negotiations with Independent Power Producers (IPPs), leading to the planned closure of five IPPs with a combined capacity of 2400 megawatts in the first phase. These steps are part of broader efforts to reduce the energy sector’s burden on the national economy.

According to sources from the Ministry of Energy, the names of the five IPPs to be closed have been finalized. The largest among these is the Hub Power Company (Hubco), which has a capacity exceeding 1200 megawatts. The AES Lal Pir power plant, with a capacity of 362 megawatts, is also set to be closed.

Additionally, Atlas Power, which generates 224 megawatts, and Saba Power, with a capacity of 136 megawatts, are also on the list of IPPs that will be shut down in this first phase. The list is rounded out by the 450-megawatt Rousch Power Plant, which will also cease operations.

Sources have revealed that the decision to terminate contracts with these IPPs has been carefully evaluated, and the final approval for these closures will be sought from the federal cabinet.

The government’s move comes as part of its larger strategy to rationalize the power sector, particularly focusing on older, less efficient IPPs. Many of these power plants have been operating under contracts that were signed decades ago when Pakistan faced severe energy shortages. However, the energy landscape has changed since then, with newer, more efficient power plants coming online and a stronger emphasis on alternative energy sources such as wind and solar.

The closure of these IPPs is expected to reduce the capacity payments the government is obligated to make, easing the financial burden on the energy sector. Capacity payments are made to IPPs whether or not their electricity is used, which has contributed to the growing circular debt in Pakistan’s power sector. By eliminating older, less efficient plants, the government aims to cut down these payments and better manage the country’s electricity supply.

These negotiations are a continuation of the government’s broader effort to reform the power sector, which has been one of Pakistan’s most pressing economic issues. Circular debt in the power sector, which has reached alarming levels in recent years, has been a major hurdle for successive governments. Prime Minister Shehbaz Sharif’s administration has placed significant emphasis on addressing these challenges by renegotiating terms with IPPs and shifting towards more sustainable energy solutions.

While the closure of these power plants will reduce the strain on the economy, it will also pave the way for a more sustainable energy mix, allowing Pakistan to rely more on renewable energy sources and more efficient power plants.

Sources within the energy ministry indicated that further phases of IPP closures may follow, depending on the outcomes of these initial closures and the ongoing negotiations with other power producers.

The federal cabinet’s approval of these closures will be a significant milestone in the government’s efforts to reform Pakistan’s energy sector and reduce the burden of capacity payments. This decision marks an important step towards achieving a more efficient, cost-effective, and sustainable energy future for the country.