The Applied Economics Research Centre (AERC) of the University of Karachi (KU) in collaboration with the Ataleeq Foundation arranged a discussion at the centre’s Rangoonwala Conference Hall on the challenges and solutions regarding the country’s energy crisis.
The speakers during the recent event called “Pakistan’s energy crisis and IPPs: how overbilling impacts quality of life and pathways to solutions” observed that the independent power producers (IPPs) are enjoying a free hand in Pakistan and there is no check and balance over their performance and especially agreements signed with them.
They informed the audience that now the whole country knows that the majority of IPPs are directly and indirectly owned by people who are part of past and present governments, and that is why no strict action is being taken against the IPPs which have a very poor record.
Mohammed Sabir from the Social Policy Development Centre Karachi shared that the electricity tariff would not come down until the authorities give priority to the masses rather than their own interest.
He said that this is so unfortunate that we import coal to produce electricity rather than availing our own coal resources. He mentioned that most of the agreements with the IPPs were matured without thinking about the public. He added that ironically, the deal with one of the IPPs was renewed in the previous dates of 2024 after the expiry of the contract.
Sabir shared that those IPPs who are not supplying at all are also being paid in full and on time. On the other hand, matters like expensive agreements with the IPPs, line losses, and overbilling have now become a matter of survival for us.
AERC faculty member Dr Aamir Siddiqui believes that electricity charges are not going to decrease in Pakistan soon, because the government has made petrol and electricity a source of income. He said that the past and present governments have made sure to safeguard the benefits of the IPPs which eventually damage the country’s exchequer badly and deprive the public of their basic rights also.
He noted that despite severe criticism from the public, the government is not ready to revise the unfair agreements with the IPPs. Dr Amir said that despite having around 100 IPPs in the country, electricity charges are regularly increasing whereas they should remain less, but nothing is happening in favour of the masses.
He added that Pakistan is generating more power than the demand but still many cities face prolonged loadshedding while charges are skyrocketing, which is a matter of concern. The culture of IPPs started in 1994 and no government bothers to revise the agreement nor do they direct the IPPs to improve their quality and services even though they are paid in dollars or amounts equivalent to the dollar exchange rates.
Another faculty member from the AERC, Dr Fouzia Sohail, shared that before September 2008, standard slabs of less than or equal to 50 units, 1-100 units, 101-300 units, 301-1000 units, and more than 1000 units were in use in Karachi which was replaced after September 2008 with 1-100 units, 101-300 units, 301-700 units, and more than 700 units and since 2014, we are paying different amounts for 1-100 units, 101-200 units, 201-300 units, 301-700 units and more than 700 units, and all bills are charged on the highest slab rates.
She said that due to the increase in tariff, low-income households on average allocated less for health, transport, communication, recreation, education, housing, and fuel. More or less a similar pattern is observed for middle-income households, and high-income households also alter their budgets except for transport and restaurants.
She noted that the increased electricity prices compelled poor households to cut their spending on commodities other than necessities. On the other hand, it raises the cost of different food and non-food items, which increases the expenditure of poor households on essential goods. For low-income households, a Rs1,000 increase in electricity expenditure is accompanied by a decrease in food expenditure, and health expenditures are crowded out at all income levels.
She observed that the public also needs awareness about electricity issues and mentioned that the frequent increases in electricity prices and changes in slabs by K-Electric have pushed a large population of Karachi to the poverty line.
Dr Fouzia mentioned that clauses in the agreements are prioritizing the interests of IPPs over those of consumers. The fixed capacity payment and take-or-pay agreements ensure that IPPs receive a guaranteed payment regardless of actual power generation.
She added that according to the Pakistan Institute of Development Economics (PIDE) Discourse 2023, a staggering requirement of Rs2 trillion in 2023/24 for capacity payments, of which a whopping Rs1.3 trillion will be spent on plants lying idle. The cycle of expensive power purchases is crippling our economy.
She suggested that there is a dire need to renegotiate IPP agreements and privatization of DISCOS advised to nationalize IPPs and observed that K-Electric should be unbundled into separate generation and distribution companies.