ENERGY Minister Awais Leghari has correctly underlined the nation’s poor economic conditions as a major reason for rising electricity prices. Neither IPPs nor any government nor past policies, he argued recently, are to blame for the steep rise in power tariffs. Pakistan’s poor economic conditions are the cause of the inflated electricity bills that are eating into people’s savings, the minister insisted. For example, he described currency depreciation as the “biggest driver behind rising tariffs”. That indeed has been the case, leading to a power price increase of Rs8 per unit in recent months, as stated by Mr Leghari. Another related issue is the steep jump in interest rates, which has exponentially increased debt-servicing costs for power producers. Put briefly, the solution to the worsening power issues and rising tariffs lies in enforcing stringent fiscal discipline and improving the external account. Other measures, such as the conversion of coal-fired plants to local coal, re-profiling the Chinese energy debt, and negotiating a reduction in returns to CPEC and non-CPEC IPPs would provide some relief if successful, but will not mean much in the longer run if the exchange rate continues to depreciate because of the government’s fiscal extravagance.

For once, it was encouraging to see a minister refusing to witch-hunt power producers, as being demanded by the influential textile lobby, which is campaigning for subsidised electricity to cover its own inefficiencies. He said the government would not unilaterally terminate or alter agreements with the IPPs, local or foreign. Previously, we have seen disastrous consequences when investors have been persecuted in the name of accountability. Each such episode has only increased the risk premium on investments. The controversial terms of power purchase deals with the IPPs — guaranteed returns, dollar-denominated payments, etc — are a legacy of the political witch-hunt of those who had invested in power generation in the 1990s and later. It is unfortunate that this time, calls for termination of agreements with the IPPs — with no regard for the consequences — are being voiced by some textile owners whose own mills are inoperative. There are many solutions to reduce power prices short of breaching existing agreements with private power producers. The good news is that the government is considering these options to slash electricity prices. Still, no solution can keep the prices down long enough without fiscal and external account stability.

Published in Dawn, August 28th, 2024