IPPS: The real issues

Abstract

In 1985, the Government of Pakistan (GOP) with the assistance of the World Bank formulated its long term strategy for development of the power sector in Pakistan. At that time it was correctly assessed that the provision of assured and reliable power would spur economic growth. With energy demand growing at 12 percent and supply at 7 percent per annum, load shedding was rampant with consequential output losses for industry and agriculture. Under the new energy policy Pakistan's first private sector power plant, the Hub Power Company (Hubco) came into operation. Many others followed the suit. However, since May 1998, an important issue facing Pakistan policy-makers has been whether independent power producers (IPPs) produce expensive electricity. It is contended that IPPs expensive power has rendered the state utility, Water and Power Development Authority (WAPDA), bankrupt. This paper sifts through rhetoric surrounding IPPs and finds that the IPPs produce cheaper electricity than both WPADA and KESC and the country would have saved atleast $4.65 billion had the same power been produced by IPPs (Hubco). The findings should not be surprising as IPPs are more efficient than the state utility WAPDA.