Events

Pakistan’s grave energy crisis and circular debt has several reasons but one of the core reason is the IPP (Independent Power Producers) agreements based on take or pay model, where the government guarantees rate of return on US dollar basis, (capacity payments) regardless of whether electricity is used or not. Today, this has led to a situation where the people of Pakistan cannot afford to buy the electricity produced by the IPPs but the government has to pay them, even when many of them are producing little or no electricity. It is estimated that at least 900 billion rupees capacity charges are paid to the IPPs in just one financial year highlight their massive impact on Pakistan’s already precarious public finances. To address this problem, the federal government has started to renegotiate contracts with several IPPs reportedly leading to 1000 billion rupees saved. While there is consensus on renegotiations as the way forward, there are at the same time apprehensions on the process of renegotiations and legal challenges it may pose both at the national and international level against the enforcement of changed power purchase agreements.