Electricity generation in Pakistan began in the 1960s with major projects like the Warsak and Mangla dams, followed by the opening of the world’s largest Tarbela Dam in the early 1970s. By the 1970s, nuclear energy was also introduced, with the first nuclear power plant near Karachi opening in 1971. In the 1980s, Pakistan established the Guddu Thermal Power Plant using oil and gas.
In the 1990s, Pakistan’s total electricity generation was 11,000 megawatts, with 60% from hydro power and 40% from nuclear and thermal power plants. To address a power deficit in 1994, Pakistan signed 70 agreements with Independent Power Producers (IPPs) for 13,000 megawatts of electricity. These agreements were made because the government could not meet the electricity demand. The IPPs provided 6,000 megawatts, helping to alleviate the shortage.
By 2005, Pakistan was generating surplus electricity, but within two years, a new shortage arose, peaking at 5,500 megawatts in 2010. Despite the start of wind power generation in 2012, severe load shedding persisted through 2013. During the government of General Pervez Musharraf, 48 companies were contracted; between 2008 and 2013 under the PPP government, 35 companies were added; and during the 2013-2018 PML-N government, 130 companies were contracted. In 2018, the PTI government signed long-term agreements with 30 companies.
Now, let’s examine the financial implications of these IPPs. IPPs are allegedly exploiting three major issues:
Capacity Payments: IPPs are paid to maintain their power generation capability, regardless of whether they produce electricity or not. This means they receive payments even when their plants are not operational due to lack of demand.
Frequent Rate Increases: Electricity rates have been repeatedly raised, burdening consumers.
Outdated Plants: Many IPPs operate old power plants from the 1950s, which are inefficient and costly to run. As a result, the cost per unit of electricity ranges between 24 to 35 rupees more than necessary.
When questioned about these issues, government officials often claim they must adhere to existing contracts, even though international laws do not typically support such one-sided arrangements.
The most significant concern in IPP operations is capacity charges. Capacity payments are intended to compensate IPPs for keeping their plants operational, even when not generating electricity. According to the Ministry of Energy, from 2013 to 2024, IPPs received 8,344 billion rupees in capacity payments. Last fiscal year, 1,300 billion rupees were paid, with an anticipated 2,010 billion rupees this year.
High-profile figures have also been implicated in this financial scheme. For instance, Suleman Shehbaz, son of Prime Minister Shahbaz Sharif, owns Chiniot Power Limited, which produced only 33% of its capacity but received 1.55 billion rupees in capacity charges. Jahangir Khan Tareen, a senior politician, owns three power plants through his companies. Abdul Razak Dawood, former advisor to Imran Khan, owns a company producing 4% of its capacity and received 688 million rupees. Nadeem Babar, former advisor on petroleum, owns two IPPs that produced only 11% of their capacity and received 313 million rupees. Mian Mansha’s group owns four IPPs and received over 20 billion rupees in capacity charges in the past year.
China Hub, Port Qasim, and Shanghai Electric Thar Coal Power Generation received massive capacity payments despite underperformance. For instance, China Hub, which had a 132-megawatt capacity, generated only 15% of its potential but received 142.82 billion rupees. Similarly, Port Qasim, with a 1,320-megawatt capacity, generated 18% and received 121 billion rupees. Shanghai Electric, with the same capacity, generated 68% but also received 121 billion rupees.
Interestingly, some IPPs like Hubco and Kepco, which had agreements for significant capacity, generated no electricity last year but still received billions in capacity charges.
The persistent issues with IPPs raise crucial questions about who benefits from this ongoing exploitation. The individuals and companies involved are often those who have connections with the government, leading to a cycle of self-serving contracts and financial gains at the expense of the public.
