High Energy Costs Are Killing Pakistan’s Industrial Competitiveness
Pakistani industry faces an existential crisis due to exorbitant electricity costs. Currently, manufacturers pay Rs 34 per unit (15 cents/kWh) compared to the 4-6 cents/kWh paid by regional competitors. This crushing disparity has rendered our industrial sector fundamentally uncompetitive in global markets.
The Problem: Flawed IPP Contractual Framework
The primary culprit behind these astronomical energy costs is the deeply flawed structure of Independent Power Producer (IPP) contracts. These agreements, based on the “take or pay” model, obligate the government to pay for generation capacity regardless of actual consumption. This contractual inefficiency inevitably translates into extortionate tariffs for end consumers.
The government’s preliminary steps toward addressing this issue have already demonstrated measurable results. The cancellation of six IPP contracts and the conversion of fourteen others to a “take and pay” basis immediately reduced electricity costs by Rs 2.30 per unit. This tangible improvement confirms that the approach works, but it merely represents the beginning of what’s possible.
Comprehensive Solution Within Reach
A more thorough implementation of these reforms could yield dramatically greater benefits. Forty-two government-owned IPPs continue to operate under the same problematic contracts. Converting these to “take and pay” arrangements would reduce costs by an additional Rs 4.70 per unit.
Similarly, thirty windmill facilities await contract revisions that could cut prices by Rs 1.10 per unit, while reforming agreements with ten coal-powered plants could contribute a further Rs 1.10 reduction.
Collectively, these changes would decrease electricity costs by Rs 10 per unit, bringing the tariff from Rs 34 down to Rs 24. This would position Pakistani manufacturers much closer to the Rs 26 per unit (9 cents/kWh) threshold required for international competitiveness.
Urgency of Implementation
The economic consequences of delay are severe and compounding. Each day of inaction results in further factory closures, job losses, and increased dependence on imports for goods we should be producing domestically.
The necessary reforms don’t require technological innovation or substantial capital investment—merely the political determination to rectify contractual arrangements that have proven detrimental to national economic interests.
The evidence speaks for itself: when IPP contracts were renegotiated, costs decreased immediately. Extending this approach systematically across the power sector is essential to safeguarding Pakistan’s industrial future.
