ISLAMABAD: Potential unrest in Pakistan could stem from costly electricity, a result of “faulty and overpriced” contracts with Independent Power Producers (IPPs), warned a parliamentary panel calling for a forensic audit of these private generators.
The panel highlighted that consumers are paying hundreds of billions of rupees each year to IPPs, regardless of whether they generate power or not. Lawmakers emphasized the need for immediate action to address the financial burden on the public and ensure transparency in the energy sector.
The Senate Standing Committee on Cabinet Secretariat that met here with Senator Rana Mehmood-ul Hassan in the chair took a briefing from the energy sector power regulators including National Electric Power Regulatory Authority (Nepra) and Oil and Gas regulatory Authority (Ogra).
“The current contracts with IPPs are draining the economy and causing undue hardship for citizens,” said a member of the parliamentary committee. “A comprehensive forensic audit is essential to uncover irregularities and hold accountable those responsible for these inflated agreements.”
Pakistan’s energy sector has long been plagued by inefficiencies and mismanagement, with IPP agreements often criticised for being overly favorable to private producers at the expense of the public.
Senator Abdul Qadir stressed the importance of closely monitoring forensic audit to prevent manipulation by what he termed the “IPPs mafia.” He warned that this powerful group could obstruct efforts for transparency. Qadir warned, “This mafia is so powerful that it can bulldoze everyone.” He recommended that Nepra should provide a special briefing on the power sector where independent energy experts would be invited. Nepra chairman suggested that Nepra is not the only stakeholder, Power Division, Ministry of Finance and Ministry of Foreign Affairs should also be invited as some IPPs have foreign investment.
The committee questioned the Nepra chairman, seeking clarity on the origins of IPPs agreements. Members asked where mistakes were made that led to faulty and overpriced deals with private generators, putting the country in this quagmire.
Nepra Chairman Waseem Mukhtar explained that during 2007 and 2008, Pakistan faced prolonged power outages due to low generation capacity and heightened terrorism, deterring investment. To attract investors, contracts guaranteed dollarised returns on equity.
He further noted that in 2013-14, under the China Pakistan Economic Corridor (CPEC), new plants were established, anticipating a 6 percent GDP growth and increased electricity demand. However, demand forecasts proved inaccurate, resulting in overcapacity.
The chairman highlighted that last year’s forecast of 116 billion units of consumption was overestimated, with actual demand falling to 100 billion units. Now, for the 2024/25 fiscal year, tariff calculations are based on a projected 3 percent GDP growth with projected consumption of 106 billion units, while generation is expected to be 134 billion units, with 11.8 percent distribution and 2.2 percent in transmission losses. Mukhatar emphasized that macroeconomic indicators, particularly the exchange rate, significantly impact tariffs.
Praising CPEC power projects for enhancing energy security, especially the Thar-coal-based projects generating 2,400MW on domestic coal, the chairman acknowledged the dollarised investments though payments are made in Pakistani rupees to them. He also addressed concerns about the Sahiwal coal power plant’s location, explaining that the National Transmission and Despatch Company (NTDC) strategically planned it to stabilise the mid-country load. The location was not randomly selected. There is technical logic behind it. When demand dips below 7,000 MW, it absorbs the jerk and stabilizes the system; otherwise, the system can trip.
Senator Abdul Qadir voiced concerns about increasing coal imports and their impact on the rupee, calling the overpriced IPP agreements a threat to the nation’s economy. He suggested a forensic audit of IPPs, warning that high electricity charges could lead to public unrest. “People are ready to come out,” he said adding, “There is something wrong that we are at this stage.”
Qadir questioned why local coal couldn’t replace imported coal in Sahiwal plant. Nepra chairman replied that the Private Power and Infrastructure Board (PPIB) was working with the Power Division to introduce a blend of local and imported coal, but complete reliance on local coal was not feasible due to the plant’s design. The Nepra chairman highlighted that the industrial sector, despite representing only 1 percent of the consumer base, accounts for 26-27 percent of power consumption. He also said that they are moving towards retail market where anybody can buy and sell power independently one megawatt and above. He informed that hopefully in October or November they will finalise it.
The Nepra chairman expressed concerns that since they are moving towards retail market and if the industry exits the system, the loss of its Rs220 billion cross-subsidy, which is paying to other consumers, would necessitate further tariff increases.
Committee Chairman Senator Rana Mehmoodul Hassan urged officials to find solutions, noting that the entire nation bears the brunt of inefficiency in tariff monitoring. He also called for accountability in tariff determination and requested a report on the authority overseeing this matter.
Later, Ogra chairman and its senior officials briefed the committee members on its operations and performance. The meeting also covered the outlook for oil and gas licensees and complaint resolution. Senator Mohammad Abdul Qadir suggested that Ogra should enhance legislation by implementing area responsibility.
The committee members expressed serious concern over the loss of precious lives caused by cylinder blast. They recommended increasing penalties and fines for unauthorised cylinder manufacturing. Furthermore, the committee members advised the Interior Ministry to produce a report within one week on the legislative aspects related to the incident.