IGCEP 2025-2035: FPCCI raises objections to some proposals

ISLAMABAD: The Federation of Pakistan Chamber of Commerce and Industry (FPCCI) has raised objections on some proposals of the Indicative Generation Capacity Expansion Plan (IGCEP) 2025-2035, the foremost being the rapid escalation of capacity payments, the fixed charges payable to power producers irrespective of actual generation which have increased from Rs 2 per kWh a decade ago to Rs17.06 per kWh today and now consume nearly half of the consumer tariff.

Pakistan has already incurred over Rs 6 trillion in capacity payments, which is more than the total cost of fuel consumed. This burden is unaffordable and is the direct outcome of planning on an ad hoc basis without applying binding limits on capacity charges in consumer tariff, the FPCCI noted in a letter to NEPRA.

FPCCI however appreciated NEPRA and the Government for excluding billions of dollars of unnecessary and high-cost projects from the IGCEP which is a shift toward affordability, efficiency, and fiscal prudence. But added that important concerns remain that must be addressed before the plan is finalised.

FPCCI recommended that no new generation capacity should be approved until capacity charges are reduced to below Rs 5 per kWh in the consumer tariff. This ceiling should be made a mandatory part of all future planning across every department and authority. It must serve as the central condition for IGCEP and for all future projects. Without this safeguard, we will continue to repeat the same mistakes of overbuilding idle generation capacity, inflating fixed costs, making tariff unaffordable and worsening circular debt.

The Association further stated that the benchmark of Rs 5 is not arbitrary. It reflects global practice where capacity charges generally do not exceed 15 to 25 percent of the consumer tariff. It also balances affordability for consumers, competitiveness for industry, and fiscal responsibility for government.

“Adopting this ceiling will automatically correct the central problems of the power sector. It will bring discipline to planning, ensure that capacity additions are justified, contain tariffs, and restore credibility to IGCEP and other long-term documents,” said FPCCI.

On capacity charges, the Association stated that these can only be offset by increasing demand and selling more units, and price is the key factor in stimulating demand especially industrial demand. The more units sold, the lower the effective capacity charges, because fixed costs can only be divided across a larger base.

In this way, the Rs 5 ceiling is not only a technical safeguard but also a commercial discipline that will align incentives correctly, expand consumption by making electricity affordable, rather than piling on unaffordable generation capacity.

FPCCI argued that this affordability ceiling must become the binding benchmark for every policy, plan, and approval in the power sector.

“The question before adding even a single kilowatt must be: What will its impact be on capacity charges? If the answer is unaffordability, then the project should not move forward,” the Association said adding that it is particularly troubling that we are planning almost 20,000 MW of additional generation capacity at a time when national demand is stagnating or even declining.

This mismatch between falling demand and rising planned capacity exposes the sector to idle plants, higher capacity payments, and deeper fiscal strain. In today’s global context, technologies such as utility-scale solar and battery energy storage systems can be deployed rapidly, at the necessary location, at much lower cost, and without locking the country into decades of unaffordable capacity payments. A more prudent approach is to add projects only when demand or urgent system needs justify them.

“Even projects already committed under the National Electricity Plan should be revisited. Those that no longer meet least-cost criteria or align with economic growth priorities should be rescheduled or cancelled.

Without the Rs 5 ceiling, every new megawatt simply adds to subsidies, debt, and unaffordable tariffs,” the Association said offering technical expertise and constructive engagement to ensure IGCEP is aligned with affordability, fiscal prudence, and long-term sustainability.

Copyright Business Recorder, 2025