Pakistan’s power sector woes are a hot topic, often attributed to capacity charges as the primary cause of circular debt and high electricity costs. However, the reality is far more complex.
The public’s lack of exposure to the true causes makes it challenging to convey the consequences of our cumulative failures in power sector policies, governance, and accountability.The result is continually rising electricity prices, escalating circular debt, and a failing transmission and distribution system.
Exorbitant electricity charges for both commercial and domestic consumers have rendered Pakistan’s industrial sector unviable and tested the patience of households.
Various analysts blame political actors selectively, but few address the root cause of this crisis: the shift in the national power generation mix from a hydel/renewable-dominated system to one reliant on imported fuel-based thermal power generation.
Pakistan is blessed with the Indus River Basin, a natural hydrological resource. Instead of harnessing its potential through storage reservoirs and run-of-the-river power projects, we politicised hydel projects and favoured thermal power plants. This strategic direction ignored the implications for an oil and gas-importing country.
Facing a rapidly increasing demand, political governments, limited by their electoral terms, opted for Independent Power Producers (IPPs) to invest in thermal projects that could be completed quickly.
Bureaucratic and political collusion resulted in rigged contracts with guaranteed profits and capacity payments in a “Take or Pay” mode, backed by sovereign guarantees and international arbitration.
According to NEPRA’s 2002 report, Pakistan’s total installed capacity was 43,775 megawatts, with 59% thermal, 25% hydro, 7% renewable, and 9% nuclear.
IPPs, accounting for 30% of national power generation, are entirely thermal. The miscalculation of industrial consumption targets led to an overestimation of demand, contributing to the current excess capacity.
Pakistan’s power sector woes began with the gradual decline of WAPDA (Water and Power Development Authority) due to multiple factors such as high debt-based expansion, costly expansions without federal grants, high operational expenses, compulsions for subsidised rates, and inefficient private power projects. The introduction of the Private Sector Power Generation Policy in 1994 marked the beginning of the IPPs era.
