Renegotiating IPPs: Compensation, Take-and-Pay, and the Credibility Test

By early December 2024 the IPP renegotiation story had moved from rumour to partial execution. Reporting described premature termination of power purchase agreements with five IPPs in exchange for lump-sum compensation covering foregone capacity payments and receivables, with a larger set of plants eyed for conversion from take-or-pay to take-and-pay. Bagasse-based contracts were also reported as amended. Capacity payments had grown into a crushing share of the national average power purchase price. One detailed account put FY2024 capacity payments around Rs 2.1 trillion, with a further projected rise for FY2025, and noted capacity payments constituting about 65 per cent of the national average power purchase price.

Generators earn less for merely being available; dispatch and energy payments matter more. Opaque, selective deals invite litigation from those excluded and suspicion from those included. If Pakistan cuts thermal fixed costs only to sign new poorly structured contracts, it will repeat the cycle. NEPRA, the Power Division, CPPA-G, the system operator, and the DISCOs each hold a piece of the puzzle, yet none owns the full cash-conversion cycle.