 "The Ministry of Power has amended a key regulation, enabling power plants that supply electricity to neighbouring countries to sell their output back in India if they encounter difficulties in the foreign markets. This move comes in the wake of ongoi")
Energy sector executives have said that their decisions to back out were not “entirely voluntary”. | Representational
Pakistan’s military played a key role in the abrupt termination of power purchase agreements between the government and five private utility companies. A report by The Financial Times has claimed that the country’s intelligence agency, Inter-Services Intelligence (ISI), coerced the power companies into ending their contracts early, despite their long-term commitments.
Earlier, on October 10, the Pakistani government officially cancelled these agreements, including one with the country’s largest utility provider that was originally set to last until 2027. The government cited cost-saving measures as the reason for this decision. Prime Minister Shehbaz Sharif’s office stated that the companies had “voluntarily agreed” to prioritise national interest over their own business concerns by terminating their contracts prematurely.
However, energy sector executives told The Financial Times that these decisions were not “entirely voluntary”. They revealed that the agreements were reached after weeks of intense pressure from security forces. One military officer reportedly sent a text message to an energy executive, stating, “We will go to any measure, even beyond our imaginations, to get the issue settled. The time has come to give a final blow to such IPPs [independent power producers].”
Pressure behind the scenes
The report highlights meetings between senior executives from the utility companies and high-ranking security officials, some of which were attended by Nadeem Anjum, the former head of the ISI, before his retirement in September. One businessman described the negotiations as more of an “execution than a negotiation”, hinting at the overwhelming pressure the companies faced.
Sources quoted in the report suggest that threats were made, with security and government officials warning energy investors that their ventures in other sectors would be investigated if they did not comply with the government’s demands. One source told The Financial Times, “Coercion and threats worked. At the end, all sponsors and investors are human and make decisions to ensure their physical and business interests’ wellbeing.”
Government denies coercion
In response to the allegations, Pakistan’s Ministry of Energy dismissed claims of coercion, insisting that the talks with the utility companies were conducted in a “cordial and constructive environment”. The ministry stated that accusations of harassment were “completely unfounded and baseless”. The Pakistan Armed Forces also rejected claims of intimidation or threats being used during the negotiations.
Awais Leghari, Pakistan’s power minister, acknowledged that both the government and the companies had engaged in multiple rounds of discussions to modify the terms of the agreements. He stressed that there had been a mutual understanding that action was required to prevent the collapse of the power sector. Leghari also noted that, despite the early termination of the contracts, the companies would still have realised substantial profits compared to other markets.
Impact on the power sector
One of the affected companies, Hub Power Company Ltd (Hubco), announced last week that it had agreed to end its contract with the government for a southwestern generation project ahead of schedule. Initially set to last until 2027, the contract was cut short, with the government honouring its commitments until October 1, 2024. Hubco cited ‘greater national interest’ as the reason for its decision.
The news has had a significant impact on the stock market. By the end of trading on Friday, Hubco’s shares had dropped by more than 30 per cent since September 18. Lalpir Power, another utility that agreed to an early termination of its contract, also saw its share price decline by 32 per cent over the same period.
Background of the agreements
The agreements in question were part of a broader effort to address Pakistan’s electricity shortages a decade ago. The government approved several private projects by independent power producers, which were mainly financed by foreign lenders. While these projects alleviated the blackouts that had plagued the country, they also contributed to a significant rise in electricity tariffs. Over the past three years, tariffs have more than doubled as the government reduced subsidies and passed on the costs of maintaining 40,000MW of installed generating capacity — much of which remains underutilised — to consumers.
This shake-up in the power sector reflects the complex challenges Pakistan faces in balancing economic, political, and security concerns while managing its energy needs. The role of the military in this process raises questions about the extent of its influence over civilian sectors and the consequences for business stability in the country.
First Published: Oct 14 2024 | 4:42 PM IST
