New Delhi, April 29 The deep crisis in Pakistan’s power sector, in which consumers are left to pay huge electricity bills amid widespread outages, has resulted from excessive borrowing and financial mismanagement by the ruling establishment, according to an article in Geo News.
At the heart of the problem is that Pakistan’s Independent Power Producer (IPP) model violated nearly every condition of development finance. Take-or-pay contracts transferred demand risk from investors to consumers. Sovereign guarantees transferred default risk from lenders to the state. Indexed tariffs transferred currency and inflation risk from developers to electricity buyers, the article states.
It highlights that “at each step, the private sector retained the upside while the public sector absorbed the downside. This was a structured transfer of fiscal liability dressed in the language of private investment, and it persisted across two decades because the parties who designed the contracts were not the parties who paid for them.”
The article points out that Pakistan is paying for the right to use plants at rates that assume near-full utilisation, while overall thermal plant utilisation was below 45 per cent. The situation is akin to a government contracting to pay a hotel 80 per cent of room revenue regardless of occupancy but this would not be possible as it would face immediate public audit.
Pakistan’s power sector did precisely this across dozens of contracts over two decades, and the audit arrived only when the fiscal consequences became impossible to absorb. The costs were dispersed across millions of consumers and a national circular-debt stock, while benefits were concentrated in project companies with direct access to the policymaking process, the article laments.
It cites examples of Karot Hydropower which entered operation carrying $1.358 billion in debt against a $1.698 billion project cost. Suki Kinari carried $1.280 billion against $1.707 billion. Punjab Thermal Power assumed a 75:25 debt-to-equity ratio in its tariff structure. Coal plants followed the same financial philosophy. High leverage works when revenue is predictable.
In Pakistan’s power sector, revenue was guaranteed contractually but collected through a circular debt mechanism that by 2025 had grew into one of the largest contingent fiscal liabilities in the country’s history. The debt did not finance capacity. It financed the illusion of capacity while actual liability accumulated inside the public balance sheet at compound interest, the article observes.
It also highlights the fiasco of Neelam-Jhelum hydropower project financed at roughly $2.7 billion through sovereign borrowing that cracked, flooded and ceased generation by 2022 due to geological failures that adequate pre-feasibility work would have surfaced.
“Neelam-Jhelum is not an anomaly in Pakistan’s power sector. It is the model taken to its logical conclusion,” the article laments.
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