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As of March 2024, Pakistan’s total installed electricity capacity stood at 42,131 MW, with hydel, nuclear, renewable, and thermal sources contributing 25.4%, 8.4%, 6.
8%, and 59.4%, respectively. Despite this diverse energy mix, nearly half of the country’s electricity is produced by Independent Power Producers (IPPs), which many analysts believe are a primary reason for the high cost of electricity.
IPPs have become a significant burden on Pakistan’s economy, as all of them operate thermal plants. Under the initial agreements, the government was obligated to pay IPPs in US dollars based on plant capacity, regardless of whether the electricity was actually utilised. Over time, subsequent agreements further increased both the per-unit cost and the capacity payment burden.
As a result, consumers now pay Rs2.5 trillion to Rs2.8 trillion annually to IPPs that often do not generate a single unit of electricity but still receive hefty payments under these flawed contracts.
Break the Chains Two decades ago, Pakistan faced severe load-shedding, with power outages lasting 10 to 15 hours a day. At the time, thermal plants were necessary due to the country’s inadequate infrastructure. However, the global energy landscape has since shifted dramatically, and Pakistan is lagging far behind, with only 6.
8% of its energy mix coming from renewables—far lower than many other developing countries. To improve the situation, the government should aggressively promote solar panels and other renewable energy sources. Given the substantial economic losses caused by the IPPs, the government must audit capacity payments and consider shutting down outdated plants that have been in operation since 1994.
NABEEL BADR, Islamabad. Tags: flawed ipp.
