Pakistan has become a country where electricity costs 80 rupees per unit, largely due to agreements with Independent Power Producers (IPPs).
Commercial users in Pakistan currently pay 80 rupees per unit for electricity, residential users are charged over 60 rupees, and industrial users pay 40 rupees per unit. This tiered pricing structure is part of the economic adjustments in response to various operational and market conditions.
A news agency report has identified agreements with IPPs as the primary reason for the high cost of electricity. These agreements involve capacity payments that have significantly contributed to the country’s economic strain. Pakistan’s power sector now faces a circular debt of 2,300 billion rupees, with capacity payments accounting for more than 2,000 billion rupees.
The agreements made with power plants in the past now pose substantial fiscal challenges. Regardless of electricity consumption, the contracts mandate payments in dollars, leading to significant financial outlays. Although these power plants operate at about 47.9% capacity utilization, payments are calculated as if they are operating at full capacity.
Further exacerbating the issue is increased capacity payment obligations driven by the rising dollar value. From 185 billion rupees in 2013, these payments have escalated to over 2,000 billion rupees annually by 2024, after disbursing 6,300 billion rupees to IPPs over the past 11 years.
Experts caution that without renegotiating these IPP agreements, Pakistan could face severe economic repercussions, including the potential shutdown of businesses and industries, which would pose a grave threat to the national economy.
