- By: Azan Qamar and Shahzeb Mustafa
Pakistan’s energy sector is again under inspection as the government intent to add 7500 MW of new Independent Power Producers (IPPs) to the national grid. While this move assures to remove electricity shortages, professionals argue it may worsen existing problems such as circular debt and financial viability.
History of Pakistan’s Power Sector since its foundation, Pakistan has grappled to develop a sustainable energy system. In the pioneer years, the country relied heavily on hydro power, which was the backbone of its electricity supply. However, expeditious urbanization and industrial growth led to increasing demand for electricity.
To address the shortage, the government began to diversify its energy mix, adding thermal power, nuclear energy, and renewable sources.
IPPs in the 1990s was a historic event in Pakistan’s energy sector. Amid constantly recurring power shortages, the government signed agreements with private companies to generate and sell electricity to the national grid. While the initial goal was to draw foreign investment and address the energy crisis, the policy had notable drawbacks. The payment plan was signed on full capacity basis which lead to certain issues in the development of power sector.
Over time, the reliance on IPPs grew, but so did the financial strain on the sector. Many agreements were criticized for being non-transparent and heavily skewed in favor of investors, locking Pakistan into high capacity payments regardless of actual electricity usage.
The addition of7500 MW of new IPPs upraise certain questions about certainity and timing. If the country grapple to employ its existing capacity efficiently, will additional capacity address the main causes of the energy crisis in Pakistan?
As of 2025, Pakistan’s circular debt has been more than PKR 2.5 trillion, a significant part of which stems from full capacity payments to IPPs. Adding new IPPs with same contractual terms risks escalate the financial burden, diverting resources from major sectors like education and healthcare system.
The decision to install 7500 MW of new IPPs is a paradoxical situation. While it offers a possible solution to power shortages, it risks escalating the structural and financial challenges afflicting Pakistan’s energy sector.
A more sustainable approach would involve demanding energy efficiency, investing in renewable sources, and revisiting the existing IPP contracts to get relief from financial pressures. Without inscribing these foundational issues, the addition of new IPPs could turn out to be more of a curse than a blessing for Pakistan.