Pakistan reportedly paid Rs. 7.275 trillion in capacity payments to Independent Power Producers (IPPs) over the past five years, even when electricity was not generated, according to figures cited in local media reports.
The data indicates that during this period, total payments to IPPs exceeded Rs. 13.39 trillion. Of this amount, approximately Rs. 6.121 trillion was paid for the actual cost of electricity produced, while Rs. 7.275 trillion was disbursed as capacity payments. These payments are made under long-term power purchase agreements to ensure power plants remain available to generate electricity whenever required, regardless of whether they are actually called upon to produce power.
Capacity payments have become one of the most debated issues in Pakistan’s energy sector, as the cost is ultimately recovered from electricity consumers through their monthly bills. Critics argue that the growing financial burden has contributed to higher electricity tariffs and increased pressure on households and businesses.
Supporters of the system, however, maintain that capacity payments are a standard feature of many electricity markets worldwide. They are designed to guarantee reliable power supply by ensuring that generation facilities remain operational and ready to meet demand during peak periods or emergencies.
The issue has gained renewed attention as the government continues negotiations and reforms aimed at reducing the country’s circular debt and restructuring agreements with IPPs. Energy experts believe that improving demand forecasting, increasing grid efficiency, and revising power purchase contracts could help lower future costs while maintaining a stable electricity supply for consumers.
