Pakistan is renegotiating contracts with independent power producers (IPPs) to reduce “unsustainable” electricity tariffs, according to Awais Leghari, the federal minister heading the Power Division. The country’s energy costs have reached levels that are crippling businesses and households.
The soaring power tariffs have triggered social unrest and forced industrial closures in Pakistan’s $350 billion economy, which has contracted twice in recent years amid record inflation.
Leghari emphasized that the current power pricing structure is unsustainable and acknowledged ongoing discussions with IPPs, stating that both sides agree the status quo cannot continue. While stakeholders will need to make concessions, Leghari maintained that business sustainability would not be entirely compromised.
A decade ago, Pakistan approved several private IPP projects, funded mainly by foreign lenders, offering high guaranteed returns. However, with a prolonged economic crisis reducing power consumption, the country is now burdened with paying for excess capacity.
The government has passed these fixed costs onto consumers, leading to widespread protests. Leghari hinted at revisions to IPP contracts, including lowering guaranteed returns and adjusting dollar rates, but said no official demands had been presented to power producers. He stressed that negotiations would occur “in a civil and professional manner,” with revisions made by mutual consent.
The IMF has also urged Pakistan to revisit power agreements as part of a $7 billion bailout package, calling for structural reforms in the energy sector. Pakistan has already begun discussions on reprofiling power sector debt with China but has faced delays.
Leghari noted that current electricity rates, at around 28 U.S. cents per unit for commercial users, are uncompetitive in the region and aim to bring them down to 9 cents per unit.
