Pakistan: Paying Billions for Electricity Citizens Never Use

By Nasir Aijaz
The AsiaN Representative

ISLAMABAD: The citizens of Pakistan are gripped by a paralyzing energy crisis, created by the successive governments of some political parties. For the ordinary citizen, small business owner, or laborer, this crisis doesn’t live in policy documents.

It arrives every month in electricity bills which have skyrocketed to unaffordable levels, forcing families to choose between keeping the lights on and buying groceries.

While official statements often blame technical faults, old transmission lines, or electricity theft for these high prices, the public is pointing to a much deeper, systemic problem: Independent Power Producers (IPPs) and the lucrative, long-term contracts signed with them.

At the heart of Pakistan’s soaring electricity bills is a flawed financial framework known as “capacity payments.”

Decades ago, to attract private investment into the energy sector, successive governments signed long-term Power Purchase Agreements (PPAs) with private power companies (IPPs).

Under these “take-or-pay” contracts, the state contractually guaranteed to pay these companies massive sums of money just for existing.

Under these contracts, the government is legally obligated to pay IPPs based on their installed capacity (the maximum electricity they are capable of producing), regardless of whether the national grid actually uses, or even receives, a single kilowatt of that electricity.

The financial drain of this setup is staggering. A huge amount of 3,400 billion Pakistani rupees is diverted annually to IPPs under these capacity obligations.

This has pushed the energy sector’s total “circular debt” (unpaid government subsidies and running deficits) to between 2.6 trillion and 3.2 trillion Pakistani rupees.

This system is highly regressive. Research shows that the poorest 40% of Pakistani households, who hold less than 30% of the national income, end up bearing up to 60% of the debt-servicing surcharges tucked into their bills.

Public anger has reached a boiling point because of those benefiting from these contracts. A breakdown widely circulating in public discourse highlights a massive concentration of power plant ownership tied directly to the country’s ruling elites and state establishment.

According to these public analyses, 78% of Pakistan’s electricity generation ownership is concentrated within just three main blocs:

1. Political Dynasties (68% Combined), which include the Sharif Family (Of Prime Minister Shehbaz Sharif) & PML-N (Ruling party) Leadership, attributed with a 44% share (28% tied directly to the Sharif family and 16% to other Pakistan Muslim League-Nawaz leaders).

The Zardari Family (Of President Asif Ali Zardari) & PPP (PML-N’s partner in government) leadership, attributed with a 24% share (16% tied directly to the Zardari faction and 8% to other Pakistan People’s Party leaders).

2. State Institutional Influence (10%): The state establishment holds a 10% stake in the power production space, rounding out the core triad of domestic control.

3. External and Private Capital (22%): The remaining slice of the generation pie is split among international investors and localized private capital: Chinese Investors: 8%; Qatari / Arab Investors: 7%; Local Pakistani Capitalists: 7%.

Because the primary beneficiaries of these lucrative contracts are deeply embedded within the political factions governing the country, the public views the crisis not as an accident, but as an act of elite capture.

This convergence of political interest and dollar-indexed sovereign guarantees has created a destructive economic loop. As electricity becomes more expensive, industrial demand shrinks. Furthermore, higher-income consumers are rapidly shifting to rooftop solar to escape the grid.

However, because the government’s capacity payment liabilities are fixed, the total amount owed to IPPs does not decrease just because people use less power.

To cover these massive fixed payouts to elite-owned conglomerates, the government continually raises the base tariff and tacks on extra levies, such as Fuel Adjustment Charges (FAC).

Local trade bodies, including the Chambers of Small Traders & Small Industry, have warned that this vicious cycle is destroying Pakistan’s economic backbone. High input costs are erasing regional export competitiveness, forcing factories to shut down and triggering an aggressive decline in industrial employment.

Many major contracts are shielded by ironclad legal barriers that stretch until 2035. True systemic reform requires moving entirely away from elite-favoring sovereign guarantees. Pakistan must transition toward a transparent, competitive, open market where energy is bought based on the lowest cost, not political connections.