The 2024 Independent Power Producers (IPPs) negotiations are entering their second round. The authorities are employing game theory strategies, but this round is being conducted under different terms compared to the negotiations in 2020. Back then, open rounds of discussions involved IPPs, technical teams, government officials, and establishment representatives all sitting together. The rules of the game have changed. Now, the technical team is invisible, and the government is absent. IPPs are being approached individually or in small groups, and their interactions are only with powerful state actors.
IPPs are being asked to voluntarily sign revised agreements in the larger interest of the country. The approach varies: some are met with harsher demands, while others are treated leniently. The game theory in play seeks to prevent the IPPs from uniting. It’s a complex and interesting scenario.
The 1994 IPPs are being asked to terminate their agreements, while revised terms are being proposed for the 2002 IPPs and those from subsequent policies. Notably, there has been no mention of IPPs under the China-Pakistan Economic Corridor (CPEC) or those owned by the government itself.
In terms of tariff impact, even if all 1994 and 2002 IPPs were terminated today without compensation, the reduction in consumer tariffs would be minimal—just Rs1.2 per unit. Of the Rs2,139 billion in capacity payments last year, 4.3% went to 1994 IPPs, and 3.4% to those from 2002.
The process is expected to resume this week, with the 1994 IPPs being the first to be called. The logical solution is to offer some compensation and terminate these agreements. Most of the plants are barely in use, with just 1-5 years left........