Prime Minister Shahbaz Sharif has requested proposals from the Ministry of Finance and the Ministry of Energy to waive off capacity charges in electricity bills. This initiative is aimed at providing financial relief to consumers burdened by high electricity costs.
According to sources, the Ministry of Energy has put forward a proposal to pay off the capacity charges amounting to Rs 4 trillion in one go. This substantial payment would allow the government to provide immediate relief to consumers by reducing their electricity bills. The proposal suggests that paying the amount in a single installment would prevent further accumulation of circular debt, thereby reducing the financial burden on the government and providing significant relief to the public.
The Ministry of Energy has proposed that the Rs 4 trillion payment should be financed by the Ministry of Finance. Once this payment is made, the Ministry of Energy would be in a position to pass on the benefits to consumers in the form of reduced electricity bills. However, the Ministry of Finance has linked the provision of this relief to the conditions set by the International Monetary Fund (IMF). This means that any decision to waive off capacity charges would need to align with the IMF’s financial guidelines and conditions.
It is pertinent to mention that the Government of Pakistan has estimated capacity payments to Independent Power Producers (IPPs) amounting to Rs 2,091 billion for the current fiscal year. Official documents reveal that the highest capacity payments are projected for nuclear plants at Rs 465.7 billion. Hydropower plants are estimated to require Rs 446.4 billion, while imported coal power plants are expected to need Rs 395.4 billion. Thar coal power plants are estimated at Rs 256 billion, LNG power plants at Rs 168 billion, wind power plants at Rs 168 billion, and furnace oil power plants at Rs 81.33 billion.
Capacity payments refer to the monthly payments made by consumers to power-producing companies. These payments ensure that power producers maintain their capacity to generate electricity, thereby guaranteeing that additional demand can be met. Importantly, these capacity payments to IPPs are made in US dollars, not Pakistani rupees. This foreign currency requirement adds another layer of complexity to the financial management of the energy sector.
The proposals have been presented to Prime Minister Shahbaz Sharif, but a final decision has yet to be made. The government is weighing the potential benefits of waiving capacity charges against the financial implications and the conditions set by the IMF. The aim is to find a balanced solution that provides relief to consumers while maintaining fiscal responsibility.
Former caretaker commerce minister Gohar Ejaz has been vocal about the government’s financial strategies. Through his statements and social media posts, Ejaz has highlighted what he considers to be mistakes in the government’s approach. He warns that if these mistakes are not corrected, the country’s economic conditions could deteriorate further. His insights add another dimension to the ongoing discussions about the best way forward for Pakistan’s energy sector.
