Pakistan’s power sector is in a deep crisis, with consumers facing high electricity bills amid frequent outages. The root cause, as per a Geo News article, is the ruling establishment’s excessive borrowing and financial mismanagement. The Independent Power Producer (IPP) model in Pakistan violated key development finance conditions, shifting risks from investors to consumers through take-or-pay contracts and sovereign guarantees.
The private sector benefited while the public sector bore the losses, creating a structured transfer of fiscal liability disguised as private investment. Pakistan is now paying for plant usage at rates assuming full utilization, despite actual thermal plant utilization being below 45%. This situation mirrors a government paying a hotel 80% of room revenue regardless of occupancy, leading to unsustainable fiscal consequences.
The power sector in Pakistan accumulated massive debts through contracts that did not finance capacity but rather the illusion of capacity. The costs were spread among consumers and a national circular-debt stock, while project companies reaped the benefits with direct policymaking access. Examples like the Karot Hydropower and Suki Kinari projects illustrate the sector’s financial vulnerabilities due to high leverage and contractual revenue guarantees.
The Neelam-Jhelum hydropower project, financed at $2.7 billion through sovereign borrowing, faced failures and ceased generation due to geological issues by 2022. This project epitomizes the flawed model prevalent in Pakistan’s power sector, where fiscal liabilities have escalated, posing significant challenges to the country’s financial stability.
