PAKISTAN Law and Practice Contributed by: Nadir Altaf and Muhammad Fahim Khan, RIAA Barker Gillette
return-on-equity rates in the global market (up to 14–17%) to attract investment in the local power sector. The extraordinary return offered by the government has attracted a significant amount of local and foreign investment within the power sector and continues to do so. Circular Debt As per the NEPRA State of Industry Report 2024, the circular debt in the power sector stood at PKR2,393.370 billion in June 2024 and has continued to increase significantly since then. According to NEPRA, the main causes of the increase include: • inefficiencies in the generation; • transmission and distribution of power; • non-payment of subsidies in a timely manner; • transmission and line losses; and • low recovery of amounts owed for sale of electricity. Economic Meltdown Dwindling foreign reserves, global inflationary pressures, a weakening rupee, political instabil- ity, and globally high fuel prices of imported fuel such as oil, RLNG and coal have led to a very precarious economic situation for Pakistan. Lack of Planning/Co-Ordination There is a chronic lack of planning and co-ordi- nation within the government when it comes to the power sector. Provincial governments exercise their legal pow- er to issue letters of intent for projects without consulting the federal government, which leads to unplanned generation capacity additions. The yearly issuance of the IGCEP is typically delayed and, in lieu of a systematic onboard- ing of generation plants based on optimised tariffs, the NTDC has been incorporating new
projects into an already strained national trans- mission system. Now many of these projects are not IGCEP-compliant and NEPRA is refusing to process them until they achieve compliance. This has led to certain letter of intent holders abandoning their projects. Dependence on Imported Fuels Pakistan has failed to fully utilise its indigenous energy resources – specifically, its hydro resourc- es, renewable sources such as wind, solar and bagasse, and local coal. Instead, the country has relied on imported fuels (HSD, RFO, imported coal and RLNG) to meet its energy requirements, which have been expensive and a drain on the national foreign exchange reserves. Moratorium on Coal As a result of climate change concerns, inter- national financial institutions are now recon- sidering their support for coal power. In some cases, these institutions have even withdrawn their financing commitments for in-development coal power projects. Unwillingness of Distribution Companies to Enable Wheeling Current examples of electricity wheeling are few and far between in Pakistan. Where wheeling is being done, the arrangement is at a nascent stage and localised. DISCOs are unwilling to enable wheeling on their networks as a result of the following fac- tors, among others. • Cross-Subsidisation: DISCOs use high- revenue consumers to subsidise sale to low-revenue consumers. Losing the former consumers to wheeling would reduce the pool of high-revenue consumers, thereby
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