A FIERCE debate blaming the exorbitant electricity prices on expensive power purchase agreements with IPPs has been raging for the past couple of weeks. The issue itself is not new. The media has long been highlighting it while urging successive governments to undertake serious reforms to fix the collapsing power sector. Contracts with IPPs — that also include fixed capacity payments and guaranteed returns to ensure their availability — and expensive consumer prices are only partly to be blamed for our growing power woes and high electricity rates. Multiple reasons — including recent ones such as steep exchange rate depreciation, elevated interest rates, increased cost of imported fuel for generation, shrinking demand, and taxes — responsible for the massive gap between the basket price at which the government buys electricity from the producers and at which it sells to consumers are not even a part of the ongoing conversation. The campaigners have identified an easier target.

Spearheaded by former caretaker trade minister and textile lobby leader Gohar Ejaz, who has dubbed the power purchase contracts with IPPs a “rip-off”, the narrative against the power producers has hit many a nerve. After all, there is not a single soul in the country who has not been affected by bloated electricity bills. The most affected are middle-class households living from paycheck to paycheck. So when someone like the former minister says on a daily basis that power consumers have been saddled with unaffordable electricity bills because of the power purchase contracts signed with IPPs and that these agreements must therefore be cancelled or amended, he is applauded by both TV show hosts and an inflation-stricken public. However, the ill-considered demand for cancelling legally binding contracts with the IPPs amounts to asking the sovereign to default on its international contractual obligations, a step that will frighten foreign investors away. The report that Mr Ejaz intends to approach the Supreme Court on the issue has revived memories of the Reko Diq case where an adverse verdict had resulted in Pakistan suffering a loss of $900m, an amount it will not be able to recover from the project for many years. Sovereign default is not the answer. There are other solutions, such as the government, which owns nearly half the generation capacity built from tax money, letting go of its profits, and controlling system and theft losses, which could work.

Published in Dawn, July 24th, 2024