ISLAMABAD: Pakistan’s power sector urgently requires an integrated energy plan that goes beyond short-term solutions and adopts a comprehensive approach to independent power producers (IPPs). This plan must ensure that renegotiations are strategic, inclusive, transparent, and tailored to the country’s needs.
These points were discussed during a webinar on “Reforming IPP Contracts: Reducing Tariffs and Circular Debt,” held at the Institute of Policy Studies (IPS), Islamabad. The session was chaired by Mirza Hamid Hassan, former federal Secretary of the Ministry of Water and Power, and addressed by Khalid Rahman, Chairman of IPS, Imtiaz Hussain Baloch, DG Licensing of NEPRA, AhadNazir, Research Fellow at SDPI, Abu Bakar Ismail, Member of the FPCCI SDG Committee, Asad Mahmood, Sustainability Expert, and Dr Athar Mansoor, Public Policy Expert.
Highlighting the availability-affordability paradox, Ahad Nazir pointed out that while efforts to ensure power availability have succeeded, they have also led to higher tariffs, making exports less competitive. Circular debt has surged to Rs 2.7 trillion, primarily due to capacity payments and dollar indexation rather than the contract structures alone.
He warned that while the termination of some IPP contracts in October 2024 may have minimal immediate impact on investor confidence, broader contract renegotiations must be transparent and predictable to avoid discouraging future investment.
Building on this, Imtiaz Baloch explained that Pakistan’s power sector issues stem from governance failures and an imbalanced energy mix. He stressed the importance of thoroughly examining tariff patterns, particularly on the distribution side. Distribution companies need significant investments in infrastructure, governance, and technology to improve efficiency and reduce losses. He also emphasized the need to prioritize indigenous fuel sources to reduce dependency on costly imports, which would enhance both energy security and cost-effectiveness.
Abu Bakar Ismail supported this view, stating that a technical review of tariff structures and profit margins is essential for ensuring fair pricing and improving the industry’s competitiveness. As electricity is critical to industrial growth, escalating energy costs hinder Pakistan’s export potential. He emphasized that ad-hoc measures will not resolve the crisis. Instead, a structured, distributed resource strategy is needed to build resilience in the power sector.
Asad Mahmood addressed the issue of the “capacity trap,” with capacity payments surging from Rs 3 per unit in 2016 to Rs 18 per unit in 2025, driven by currency depreciation and poor policy decisions. He cautioned that the power model must prioritize competitiveness, ensuring that efficiency, not external pressures, drives governance and planning.
Athar Mansoor noted that past policymaking has often been characterized by knee-jerk reactions, corruption, and a lack of stakeholder engagement. He called for a transparent, inclusive approach that safeguards previous investments while implementing necessary reforms. He emphasized the need for strategic, time-bound IPP contract revisions to avoid uncertainty and restore investor confidence, with a focus on relief for both consumers and industries.
Mirza Hamid Hassan underscored that reforms should not be fragmented but rather holistic, incorporating consistent policies, investments in distribution infrastructure, and a diversified fuel mix. He stressed the importance of creating an investment-friendly power model that relies more heavily on indigenous energy sources.
The discussion concluded with a call for the revision of IPP contracts to include a comprehensive review of tariff structures. This review must balance affordability, availability, and investor confidence while addressing governance inefficiencies. These measures are essential for ensuring long-term energy security and competitiveness.
Copyright Business Recorder, 2025
Comments
Comments are closed for this article.