ISLAMABAD – The debate over billions of rupees paid to Independent Power Producers (IPPs) remains under scrutiny, with Power Division rejecting the widely circulated narrative that power companies are being paid for electricity that is never produced.
The payments in question are capacity payments, made to ensure that power plants remain available and capable of generating electricity whenever required by the national grid. Official documents reveal that Pakistan paid staggering Rs1.863 trillion in capacity payments during fiscal year 2025-26.
Of this amount, Rs944 billion was spent on debt repayments, while another Rs471 billion went towards operational payments. The figures show that a big chunk of capacity payments is being used to meet financial and operational obligations linked with power plants rather than simply being transferred to companies as profit.
Power Division sources also sought to clarify structure behind these payments, saying that only around 20 percent of capacity payments goes to the companies, while the remaining amount is linked to financing and operational obligations.
According to the sources, power plants were largely established under a financing model based on 80 percent debt and 20 percent equity. Under this model, capacity payments cover several components, including the original cost of power plants, repayment of loans, operational expenses and the companies’ return on investment.
The government’s position is that describing the entire Rs1.863 trillion as money paid to IPPs for “unused electricity” gives an incomplete picture of the actual cost structure. Another major question surrounding capacity payments is why expensive power plants remain part of the system when cheaper sources of electricity are available. Sources said that some high-cost plants are operated only when required, rather than being run continuously.
Such plants, according to the Power Division, remain important for grid stability, meeting sudden increases in demand and handling emergency situations. Their availability allows the power system to respond when additional generation is urgently required.
Power Division also offered some relief over the long-term financial burden, saying that capacity payments are expected to decline gradually as power-sector loans are repaid in phases.
While Power Division insists that capacity payments should not be confused with payments for electricity that was simply “not used,” critics continue to question the scale of these fixed financial obligations at a time when consumers are already facing high electricity costs.
