The government is renegotiating contracts with independent power producers (IPPs) to tackle “unsustainable” electricity tariffs, Power Minister Awais Leghari announced, as households and businesses grapple with surging energy costs.
Rising power tariffs have triggered social unrest and forced the closure of several industries in the country’s $350 billion economy, which has contracted twice in recent years due to record-high inflation.
“The existing price structure of power in this country is not sustainable,” Leghari stated in an interview with Reuters on Friday. He noted that discussions were ongoing between power producers and the government, with both parties acknowledging that “the status quo can’t be maintained.”
Leghari emphasized that all stakeholders would need to make concessions — without entirely compromising business sustainability — and that these changes must happen “as soon as possible.”
In response to chronic power shortages a decade ago, numerous private projects by IPPs were approved, largely financed by foreign lenders. These deals included high guaranteed returns and agreements to pay for unused power. However, a prolonged economic crisis has led to reduced power consumption, leaving the country with excess capacity that it must still pay for.
Facing financial constraints, the government has passed on fixed costs and capacity payments to consumers, prompting protests from both residential users and industrial groups.
According to four anonymous power sector sources cited by Reuters, the proposed contract changes include reducing guaranteed returns, capping dollar rates, and moving away from payments for unused power. On Saturday, the Business Recorder, a local media outlet, reported that 24 conditions had been suggested for transitioning from a capacity-based model to a take-and-pay model.
Leghari clarified that no new draft agreements or specific demands had been officially communicated to power companies and emphasized that the government would not force them into accepting revised contracts. “We would sit and talk to them in a civil and professional manner,” he said, reaffirming that the government has always upheld its contractual obligations to both foreign and local investors. Any revisions, he noted, would be made by “mutual consent.”
The viability of the energy sector was a critical focus in a staff-level agreement with the International Monetary Fund (IMF) in May for a $7 billion bailout, which highlighted the need to revisit power agreements. Talks on restructuring power sector debt owed to China and negotiations on structural reforms are underway, but progress has been slow. Additionally, Pakistan has committed to ending power sector subsidies.
Leghari pointed out that the current rates are unaffordable for both domestic and commercial consumers, negatively impacting economic growth. The aim, he said, is to lower tariffs to nine US cents per unit for commercial users, down from the current rate of approximately 28 cents.
