Pakistan’s government is in talks to renegotiate contracts with independent power producers (IPPs) in a bid to curb “unsustainable” electricity tariffs, according to Power Minister Awais Leghari. The announcement comes as households and businesses struggle under the burden of rising energy costs.
The surge in power tariffs has fueled social unrest and forced industries to shut down in the country’s $350 billion economy, which has faced two contractions in recent years due to record inflation levels.
“The existing price structure of power in this country is not sustainable,” Leghari said during an interview with Reuters on Friday.
Negotiations are ongoing between power producers and the government, with both parties agreeing that “the status quo can’t be maintained,” Leghari added.
He highlighted the need for all stakeholders to compromise to a degree, while ensuring business viability remains intact. He emphasized that this resolution must be reached “as soon as possible.”
A decade ago, Pakistan faced severe power shortages, leading to the approval of numerous private power projects, largely funded by foreign lenders. The agreements offered lucrative incentives, including high guaranteed returns and commitments to pay for unused electricity.
However, the country’s prolonged economic crisis has slashed power consumption, leaving it with excess energy capacity that it is obligated to pay for.
Unable to cover the costs, the government has passed these fixed charges and capacity payments on to consumers, sparking protests from both households and industry groups.
Four anonymous power sector insiders revealed to Reuters that the proposed contract changes include cutting guaranteed returns, limiting dollar-linked rates, and halting payments for unused electricity.