The continuous rise in electricity prices is a growing concern in Pakistan. Every day, families are burdened with escalating costs. This relentless increase is causing panic among the public, as energy costs spiral out of control. Pakistan’s total electricity production stands at over 46,000 MW, with 28,811 MW generated from thermal sources, 10,635 MW from hydropower, 1,838 MW from wind, 360 MW from nuclear energy, and 822 MW from solar power. Despite this diverse energy mix, half of the country’s electricity is produced by IPPs, which many analysts consider the real bone of contention.
IPPs have become a significant burden on Pakistan’s economy. There are currently 42 IPPs in Pakistan, all operating thermal plants. According to the initial agreements, whether or not Pakistan purchased electricity, the government was obligated to pay the IPPs in US dollars based on the plant’s capacity. Over time, subsequent agreements with IPPs increased the per-unit cost and capacity payment burden, leading to a circular debt of over Rs2,300 billion. This debt is primarily the result of capacity payments made to these power plants, regardless of actual electricity consumption. Many of these power plants are owned by influential families with strong political connections. Additionally, machinery and fuel prices continue to increase. Shockingly, millions of units of electricity are provided free of charge to government officials and departments, further compounding the issue. Faulty policies and a lack of collective national interest have led to these detrimental agreements, benefiting a select few while burdening the public. Since these contracts are backed by sovereign guarantees, terminating them could damage Pakistan’s credibility and deter future investments. Moreover, the government bears the costs of maintenance and insurance, while IPPs receive massive subsidies and tax reliefs.
Given the colossal economic loss caused by IPPs, it is imperative that the government audit the capacity payments and consider early retirement of plants that have been operational since 1994. The demand for electricity can be increased by promoting industrial growth, which has been stifled by high dollar rates and bureaucratic hurdles.
Naira Eshaal
Islamabad
