A task force constituted by the prime minister on the capacity payments to the Independent Power Producers (IPPs) proposed transition of the capacity-based model to a take-and-pay model in order to unburden electricity consumers from the payments to non-operating plants, sources said on Friday.

They said that a draft of the transition proposed the introduction of significant changes in the power sector, with various cost-reduction measures, elimination of clauses, and adjustments in the financial and operational arrangements.

The capacity payments account for 70% of total energy cost the consumers were paying currently, according to a source. “The task force is working on a proposal of amending agreements with the IPPs to end the capacity payments,” the source said.

“There is a clause, which means that consumers have to pay capacity payments to those power plants which are not operating,” the source said, adding that consumers were even making payments on 100% capacity of the plants despite the fact that their capacity had depreciated with the passage of time.

Currently, consumers are paying Rs2.1 to 2.8 trillion in capacity payments every year to those IPPs that are not generating a single unit, the sources explained. To mitigate the situation, the committee had proposed transition of capacity-based model to take-and-pay model, which meant that consumers would not have any obligation to pay capacity payments to those plants which were not operating.

In the draft, the return on equity (RoE) had been reduced to 10%, with a PKR-USD indexation set at 168. However, the return on equity during construction (ROEDC) had not been addressed in the draft, leaving stakeholders seeking clarification on its handling.

Additionally, the draft proposes a 70% reduction in the operation and maintenance (O&M) costs, both foreign and local, with the PKR-USD indexation also fixed at Rs168. The delayed payment rate has been set at 3-month Karachi Interbank Offered Rate (KIBOR) plus 2%.

The draft seeks to withdraw the company’s rights under the Implementation Agreement and the government of Pakistan guarantee, shifting the fuel arrangement burden onto the company. Without the government guarantee, receivables remain unsecured, raising concerns among industry players.