Karachi: During a recent media briefing hosted by the Sustainable Development Policy Institute (SDPI) for the Council of Economic and Energy Journalists (CEEJ) in Karachi, alarming details were unveiled about the steep escalation in electricity rates in Pakistan, directly linked to inflation in the United States. The SDPI highlighted the complex dynamics between US economic trends and Pakistan’s energy pricing, particularly the burden placed on Pakistani consumers due to the structure of agreements with Independent Power Producers (IPPs).

According to Council of Economic and Energy Journalists, SDPI research fellows Dr. Khalid Waheed and Ahad Nazir elucidated how the electricity pricing agreements with IPPs are indexed to US inflation rates. This indexing mechanism ensures that even if the US dollar weakens, electricity tariffs in Pakistan are poised to increase. Dr. Waheed provided a stark comparison, noting that capacity charges per unit escalated from Rs. 3.26 in 2019 to Rs. 10.34 by 2024, a surge of 253% due to the inflationary trends in the US combined with local economic factors.

The briefing also covered the broader impacts of these financial mechanisms on Pakistan’s economy, including a 343% increase in interest payments on electricity units over four years and a 716% rise in the cost of electricity per unit due to the working capital requirements of IPPs. Dr. Waheed pointed out the disproportionate role of capacity charges, which comprise 70% of the electricity cost, exacerbated by insufficient transmission infrastructure to support the country’s 43,000 megawatts of generation capacity.

This scenario underlines significant challenges for Pakistan, not only in managing its energy sector’s economics but also in navigating the political landscape surrounding energy infrastructure development.