In a major policy move, the government of Pakistan has cancelled Independent Power Producer (IPP) contracts valued at Rs. 3.6 trillion, citing unsustainable financial burdens on the national economy.
According to officials, the decision follows months of review and consultations with financial and energy sector experts. The move is aimed at reducing circular debt, curbing excessive capacity payments, and bringing long-term relief to the power sector.
A high-level committee concluded that several IPP agreements were overpriced, locking the country into long-term liabilities. These contracts reportedly caused annual losses worth hundreds of billions of rupees, as the government had to pay capacity charges even when power plants were idle.
An energy ministry spokesperson confirmed that only non-performing or financially unjustified projects have been targeted under this action. The government will now renegotiate fairer deals with local and foreign investors under new terms of transparency and accountability.
Experts believe this move could improve fiscal discipline and potentially lower electricity tariffs in the future. However, they also warn of possible legal disputes from the affected IPPs, which may seek compensation for contract termination.
Economists welcomed the decision, describing it as a “necessary correction” in Pakistan’s energy policy. The cancellation, they said, could help stabilize the economy and restore investor confidence if followed by structural reforms in the power sector.
With the power crisis continuing to strain public finances, the government maintains that this action is essential to protect taxpayers and ensure energy sustainability in the coming years.
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