Pakistan’s energy policies and tariffs: A historical perspective

At least 15% of Pakistan’s population lacks access to electricity, which limits prospects for inclusive growth.–Photo courtesy NEPRA

Undoubtedly, energy is one of the most crucial inputs for economic expansion in order to support industrial and commercial activity. At least 15% of Pakistan’s population lacks access to electricity, which limits prospects for inclusive growth. Until the middle of the 1980s, the Karachi Electric Supply Corporation (KESC) and the Pakistan Water & Power Development Authority (WAPDA) jointly owned every power plant in Pakistan. A shortage of resources in the public sector caused the government to stop supporting WAPDA in 1985. But because the nation’s energy requirements kept increasing, it worked with the World Bank to design an energy strategy. Private enterprises were encouraged to invest in the electricity sector by this strategy.

Task Force To Study Pakistan’s Electricity Needs

After 1993, the government anticipated electricity shortfalls at about 2,000 MW. It established an energy task force in 1993 with the objective of conducting a study of Pakistan’s electricity demands through the year 2020, knowing that it would be impossible to finance such substantial public projects. Based on its findings, the government adopted a privatized power strategy in 1994. Most of the task force report’s recommendations were incorporated into the policy, particularly the tariff and the financial incentives. The “costplus” method was utilized in the policy to calculate electricity rates, and it provided potential investors with an alluring rate of 6.5 cents/KWh. In addition to paying a high tariff rate, Independent Power Producers (IPPs) were free to employ any technology—with the exception of big hydroelectric projects on the Indus.

In addition, this policy provided a number of financial incentives, sparing WAPDA, KESC, and the IPPs from protracted negotiations, including low taxes, duties, the State Bank of Pakistan’s Foreign Exchange Risk Insurance (FERI), the freedom to select one’s own insurance provider, security packages, and the Fuel Supply Agreement. The “bulk power tariff” of the strategy, which was determined by assuming a 60 percent capacity factor, was its most significant component. The tariff consists of two parts: first, WAPDA is required to make the capacity payment each month, whether or not the IPP provides any energy to the agency that month. The second part of the cost is the energy payment, which is based on the amount of power purchased, and it comprises the fixed costs, operations and maintenance, insurances, administrative, and debt servicing. It takes into consideration the variable costs, such as fuel usage, variable operating costs, and maintenance expenses.

In response to the 1994 Policy, numerous local and international investors chose to construct power facilities. In addition to multinational bank consortiums and other multilateral lending organizations including the Asian Development Bank (ADB) and the World Bank, the foreign investors included companies from Europe, the Middle East, the United States, and Japan. There are currently 21 autonomous power generation projects, including HUBCO, KAPCO, and 19 projects covered by the 1994 policy.

The 1995 Hydroelectric Policy

The 1995 Hydroelectric Policy, which was created to promote investment in hydropower generating, was adopted as its successor. Concessions for the construction of all private sector thermal and hydro generating units were included in the ensuing 2002 Power Policy. According to the government’s 2013 National Power Policy, load shedding will no longer occur by 2017, the average generating cost will drop from $0.12 to $0.10/kWh, transmission and distribution (T&D) losses would drop from 23% to 25% in 2013 to 16%, and revenue collection will increase. The government developed a number of power projects in the years that followed the power policy of 1994, but none of them were particularly successful in enticing international investment into the power sector.

When IPP consumer tariffs kept going up, criticism of the private power sector and the institutions involved began. Different parties involved started blaming one another for dishonesty and malicious intent. The bulk tariff rate of 6.5 cents/KWh has drawn criticism for being excessively expensive. WAPDA was left paying this ceiling price the majority of the time since it provided the IPPs with no incentive to decrease expenses. The bulk duty was comparable to what was charged in other South Asian nations at the time, so it did not appear excessive. The average price in South Asia in 2001 was 5.90 US cents/kWh, with rates in other IPP-affected nations in the region (Nepal 5.90, Sri Lanka 6.7, India 5.6, and Pakistan 6.1) being similar.

Protests against inflated electricity bills rock Pakistan

Diverse energy sources in Pakistan underwent a significant change as a result of the 1994 energy strategy. Out of the entire installed capacity of 11,000 MW in 1993, 60% of the energy was generated by hydropower sources, while approximately 40% came from thermal and nuclear power facilities. By 2015, however, this percentage had fallen to 28% of installed capacity. Power generation rates are now significantly more vulnerable to fluctuations in global fuel prices as a result of the shift to a higher proportion of thermal power. Another hardship on WAPDA was the requirement that the tariff be paid in US dollars rather than rupees because the rupee’s consistent depreciation over time made it necessary for WAPDA to pay more in actual terms. When the policy was put into place, a US dollar was about worth 30 PKR. Since then, the price has climbed four times.

Who Is To Blame For Pakistan’s Energy Crisis?

In numerous instances throughout Pakistan’s history, governments have created policies using inflated growth forecasts and incorrect presumptions. The short-term political and financial rewards are frequently prioritized over the long-term effects. The IPPs made, and are still earning, enormous profits on investments with essentially little risk. It is still unclear who is to blame for this disaster. The governments of the IPPs, PPP, or PML-N, Whether or whether this is verifiable, one thing that emerges from this inquiry is that each power policy has been developed independently. The governments of the time made zero attempt to involve impartial organizations skilled in policy advice and educated about energy-related issues. The power policies were developed with little to no input from pertinent stakeholders, like the majority of policy-making procedures in Pakistan.

The writer is an M.Phil (Political Science) student at the Department of Politics and International Relations, University of Sargodha. He can be reached at

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