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Pakistan Closes Rental Power Plants as Electricity Crisis Deepens

On May 29th the Pakistani Supreme Court shuttered nine Rental Power Plants, or RPPs, ruling that they were failing to fulfill their contracts with PEPCO, the Pakistani national utility company. The plants were pitched in 2006 as a temporary solution to the country’s seemingly unending energy crisis.

The plants were financed by investors and governments and the electricity was paid for upfront by the Pakistani government. Due to chronic failure of the Pakistani government to provide natural gas, only one of the nine RPPs has succeeded in meeting its agreed upon generating capacity. Investors have claimed that the fault lies with the Pakistani government, but the Supreme Court has ruled that failure to fulfill to fulfill the contracts despite upfront payment constitutes fraud, and the plants will no longer be allowed to operate.

This ruling comes at a bad time for Pakistan, which is suffering from 18 hours a day of rolling blackouts as summer heat intensifies and people switch on air conditioners. PEPCO’s continued failure to meet national energy demand has hobbled the local textile and garment industry, forcing plants to either install costly private generating facilities or cease production for hours or days at a time. What began as an electricity shortage has also recently expanded to natural gas, meaning even plants with privately owned generators are often unable to operate them.

Looms and orders have been moving from Pakistan to neighboring Bangladesh, which has proven more adept at addressing their power crisis through free market means. This trend has allowed Bangladesh to capture a larger share of new production from China, solidifying its position as a premier sourcing hub.

The Pakistani government has responded to the energy shortage by promoting boutique power projects that rarely see the light of day. Today’s ruling will severely hobble the one great hope for Pakistan – privatization of its power supply. Foreign operators, already reluctant to operate in a notoriously corrupt and violent country, now have the added fear of retributive justice from an activist Supreme Court.

Pakistan’s current power shortage is approximately 5000 MW, and problems in the pipeline amount to only a small percentage of that. The government has tied its hands by fixing the consumer’s price for electricity and gas at less than the cost to generate it, without having sufficient funds to compensate producers for the difference. Despite having adequate reserves of coal and several potential hydroelectric sites the country remains unable to meet its ever growing demand, to the detriment of its citizens and industry.