‘Current Status of IPPs in Pakistan’ – A presentation at Quaid-i-Azam University’s School of Economics

On behalf of Institute of Policy Studies (IPS), its research officer Muhammad Wali Farooqi presented the findings of a Institute’s study on Pakistan’s independent power producers (IPPs) in a session titled ‘Current Status of IPPs in Pakistan’, held by Quaid-i-Azam University’s School of Economics (SoE-QAU) on January 15, 2025. The presentation provided a comprehensive overview of the evolving energy landscape in the country, highlighting that Pakistan’s journey with IPPs began under the 1994 Power Generation Policy, and today, 100 IPPs operate nationwide, contributing significantly to the energy mix. With a total installed capacity of 45,605 MW, 55%—or 24,958 MW—is generated by IPPs.

Interestingly, Farooqi pointed out, 10 major IPPs account for 53% of this capacity, while the remaining 90 contribute 47%. However, the study underscored an imbalance, as some larger IPPs produce less electricity but continue to receive substantial capacity payments. Despite the impressive installed capacity, the findings pointed to a mismatch between supply and demand, raising questions about the sustainability of future expansion plans. Contracts for 11 IPPs are set to expire by 2030, but a noteworthy development is that five IPPs, including Atlas Power—originally contracted until 2034—have voluntarily agreed to terminate their agreements ahead of schedule, signaling a significant policy shift.

The presentation also shed light on inefficiencies in the allocation of resources, revealing that 40% of total capacity payments are made to just 10 large IPPs. Additionally, another set of 10 major IPPs contributes to 25% of the country’s circular debt, a critical challenge threatening the financial stability of the energy sector. Looking ahead, the government plans to add 3,000 MW to the energy mix by 2030, increasing total capacity to 62,235 MW, with IPP capacity expected to grow to 28,750 MW.

The speaker, in his presentation, emphasized the need to address these challenges by streamlining capacity payments, reevaluating expansion plans, and implementing policies to tackle the circular debt crisis. The findings underscored the importance of a balanced and efficient energy sector to ensure economic stability and sustainability, he said.