KARACHI, November 11 2024: In a recent briefing to the Senate Standing Committee on Power, an update on the government’s negotiations with Independent Power Producers (IPPs) took centre stage. The co-chair of the Energy Task Force announced the potential for major savings an estimated Rs300 billion annually which could translate to a reduction of Rs2-3 per unit in electricity tariffs. These negotiations, while promising on the surface, raise some difficult questions about the long-term impact on Pakistan’s investment landscape.
While these savings could provide relief to consumers facing high power costs, the methods the government is employing are sparking serious concerns. Industry insiders and experts are warning that the coercive tactics being used to push IPPs into renegotiating contracts could irreparably damage investor confidence. How can Pakistan hope to attract much-needed foreign and domestic investment if the government is willing to challenge, threaten, or backtrack on previously signed sovereign agreements?
For context, Pakistan’s agreements with IPPs have often been criticized for favouring power producers over consumers. From the 1994 agreements overseen by the PPP to those made in 2015 under PML-N, the terms have raised concerns. Many agreements included guarantees that effectively shielded IPPs from certain operational risks, passing those costs onto consumers instead. In some cases, IPPs are alleged to have exploited loopholes to inflate costs, exaggerate returns, and dilute equity, ultimately leading to higher electricity prices. There have also been cases where IPPs reportedly understated plant efficiency to claim excess fuel, which was then sold off in the market.
While the government’s drive to curb these excesses is commendable, it’s essential to strike a balance. IPPs have undoubtedly enjoyed favourable terms over the years, but the responsibility doesn’t rest solely on them. Government entities, especially the National Electric Power Regulatory Authority (Nepra), have failed to provide the necessary oversight. The burden, therefore, falls on both public and private sectors to ensure fair practices without compromising investor trust.
The stakes in this power struggle go beyond electricity tariffs. Pakistan’s energy sector requires substantial foreign and domestic investment to meet growing demand and improve infrastructure. If the government’s approach to savings relies on coercion rather than cooperation, potential investors may be discouraged from participating in the very projects that could help Pakistan achieve energy independence and economic stability.
In the end, while Pakistan needs cost-effective power solutions, it must balance immediate consumer relief with a sustainable, investment-friendly environment. Sustainable growth, after all, requires trust and cooperation between the government, regulators, and industry stakeholders. Only by addressing these underlying issues can Pakistan truly move towards a stable and reliable energy future.
