🔲 Institutional Inquiry Series | Episode 12
Subject: How Can Pakistan’s Electricity System Be Fixed Focus: Understanding and Reducing the Burden of Electricity Tariffs
🔺 When institutions fail to provide clarity, the responsibility to establish the truth rests with the public.
Research and Analysis: Syed Shayan
🟨 When Will IPP Contracts Finally Expire?
There was a time when even load shedding, despite its inconvenience, imposed a more predictable burden. Consumers paid only for the electricity they actually consumed. Today, the structure has fundamentally shifted. Households are now paying for consumed units, capacity payments to IPPs, private generator costs, and increasingly, the capital cost of solar installations. Yet, despite this layered financial burden, electricity bills continue to rise while load shedding remains a persistent reality across both urban and semi urban Pakistan.
The formal induction of Independent Power Producers in Pakistan can be traced to the 1994 Power Policy, introduced during the second administration of Benazir Bhutto. Prior to this structural shift, the electricity sector operated largely under the centralized framework of WAPDA, which maintained unified control over both generation and transmission.
The policy objective was to address acute power shortages by mobilising private capital into generation capacity. A pivotal role in the design and execution of this policy was played by Shams ul Mulk, then Chairman of WAPDA. This marked the transition from a state dominated utility model to a hybrid structure incorporating private generation through IPPs. The long term consequences of this transition now permeate every segment of electricity consumption in Pakistan.
For analytical clarity, the evolution of IPPs and their role in the present electricity crisis may be divided into three distinct phases:
This phase emerged under conditions of severe load shedding, compelling the government to prioritise rapid capacity addition. Between 1995 and 1997, a total of 19 projects achieved financial close. Of these, four did not reach completion, while approximately 15 large thermal IPPs entered commercial operation and were integrated into the national grid.
The contractual architecture of this phase was heavily weighted in favour of investors. Key features included dollar indexed returns, guaranteed profit structures, take or pay obligations, and sovereign guarantees. During this period, Asif Ali Zardari was associated with facilitating aspects of the investment environment, though the process also attracted political criticism.
The policy intent at the time was singular: rapid expansion of generation capacity. Consequently, contract tenures were extended to 25 to 30 years to secure investor confidence. However, insufficient attention was paid to long term fiscal implications, particularly the burden these commitments would impose on future consumers.
The second phase was initiated under the 2002 Power Policy during the administration of Pervez Musharraf, aimed at revitalising private sector participation. Its practical manifestation occurred between 2005 and 2010, with the installation of multiple thermal plants based on gas and furnace oil.
Key projects during this phase included Nishat Power, Nishat Chunian, Saif Power, Engro Powergen Qadirpur, and Atlas Power. In total, approximately 12 to 15 IPPs were commissioned. While these projects contributed to capacity expansion, their long term economic justification remains subject to critical scrutiny.
The third phase became prominent after 2015, particularly under the China Pakistan Economic Corridor framework, and accelerated during the tenure of Nawaz Sharif. This phase was characterised by large scale capital inflows aimed at addressing the energy deficit through diversified sources, including coal, RLNG, wind, and solar.
Approximately 20 to 25 major projects were installed during this period.
Summary
At this stage, a fundamental policy question must be addressed with clarity and seriousness. For IPPs whose contracts have reached completion, renewal does not present a compelling economic or legal necessity. Over the past three decades, consumers have financed not only the capital recovery of these projects but also their full debt servicing and profit margins, primarily through capacity payments that have accumulated into the trillions of rupees.
In this context, it is both rational and justifiable to advance a structured policy position that such assets, once fully paid for, should transition into public ownership without delay. This would enable assets financed through public contributions to be reintegrated into the public domain, thereby realigning the system with principles of economic fairness.
Furthermore, where contractual obligations have been fully discharged, such a transition cannot reasonably be characterised as a breach of contract, nor can it be readily framed as expropriation under international legal standards.
Note This article has been prepared in good faith and in the public interest, drawing upon credible and publicly available sources, including PPIB, NEPRA, CPPA G, SECP, Pakistan Economic Survey, and IGCEP, alongside international institutions such as the World Bank, Asian Development Bank, International Energy Agency, International Renewable Energy Agency, and the International Monetary Fund. Every effort has been made to ensure accuracy. Any inadvertent error or omission is not intentional. Where substantiated corrections are identified, they will be acknowledged and incorporated accordingly.
(To be continued)
