Official data has brought to light a staggering financial reality within Pakistan’s power sector: electricity consumers have paid a massive Rs13.397 trillion to Independent Power Producers (IPPs) over the past five years. Out of this astronomical sum, only Rs7.275 trillion actually accounted for the electricity supplied to the national grid, while billions were funneled out as capacity payments to power plants that sat idle and produced zero electricity.

The Flaws of the Capacity Payment System

Under Pakistan’s prevailing power framework, numerous IPPs operate under contracts that guarantee fixed capacity payments simply for keeping their plants available—regardless of whether the national grid actually dispatches or requires their electricity. According to sector analysts, nearly 70% of total collections through consumer electricity bills are directly transferred to IPPs, making these mandatory payments the primary driver behind soaring power tariffs.

Falling Generation Costs vs. Rising Tariffs

The data further highlights a critical paradox: while actual fuel generation costs have declined in recent years, capacity payments have continued to escalate year-on-year. This structural imbalance prevents households and businesses from reaping the financial benefits of cheaper production costs. Consequently, consumers continue to face crippling electricity bills, with comprehensive structural reform of the capacity payment mechanism remaining notably absent.

Disclaimer: This post is for informational purposes only and is based on publicly available reports. The image is AI generated and is just for reference.