- Pakistan is renegotiating contracts with independent power producers to reduce unsustainable electricity tariffs amid soaring costs and public protests.
- The government seeks to lower commercial tariffs from 28 US cents to 9 cents per unit while addressing excess power capacity and fixed costs.
- Talks with the IMF and China on power sector reforms are ongoing, but slow progress has affected the country’s economic recovery.
Pakistan is renegotiating contracts with independent power producers (IPPs) to address unaffordable electricity tariffs. Soaring energy costs have hit households and businesses, sparking protests and shutting down industries. The $350 billion economy has contracted twice recently, with record-high inflation.
“The current power price structure is unsustainable,” Awais Leghari, Pakistan’s federal minister for the Power Division, told Reuters. He confirmed ongoing talks between the government and power producers, agreeing that “the status quo can’t continue.”
Leghari stressed the need for all stakeholders to compromise while maintaining business sustainability. He urged swift action to resolve the issue.
A decade ago, Pakistan approved numerous private power projects to resolve chronic shortages. Foreign lenders funded these projects, which offered high guaranteed returns and payments for unused power. But Pakistan’s economic crisis has reduced power consumption, leaving the country with excess capacity that it still pays for.
The government has shifted these fixed costs to consumers, prompting widespread protests. Domestic users and industrial groups have voiced frustrations over high energy bills. Sources in the power sector revealed possible contract changes, including reducing guaranteed returns, capping dollar rates, and eliminating payments for unused power. However, the government has yet to propose these terms formally.
Leghari clarified that the government has not sent new agreements or specific demands to power companies. “We will sit down and negotiate professionally,” he said, reaffirming Pakistan’s commitment to honouring contracts with foreign and local investors. He emphasised that revisions must come through “mutual consent.”
Energy reforms remain critical to a $7 billion bailout from the International Monetary Fund (IMF). The IMF’s May report urged Pakistan to renegotiate power deals. Pakistan has already initiated talks to restructure power sector debt owed to China and phase out subsidies, but progress has been slow.
Leghari also noted that current tariffs hurt households and businesses, stunting economic growth. High electricity prices make Pakistan’s exports less competitive in the region. The government aims to reduce commercial tariffs from 28 US cents per unit to 9 cents.
Initially designed to address energy shortages, Pakistan’s power contracts pose a significant challenge. Excess capacity and fixed payments have deepened the country’s financial crisis. The government must now balance investor confidence with consumer affordability in these renegotiations.
The success of these talks is crucial for Pakistan’s economic recovery and energy stability. The government faces the complex task of finding solutions that satisfy IPPs, consumers, and international financiers. The outcome of these negotiations will significantly impact the country’s future energy policies and economic growth.