Karachi: The former President of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and the current President of the United Business Group, Mr. Zubair Tufail, has issued a stark warning regarding the ongoing economic challenges facing Pakistan, specifically pointing to the Capacity Payment Agreements with Independent Power Producers (IPPs) as a primary concern. He argues that these agreements could significantly harm Pakistan’s economy and export sector.

According to United Business Group, Mr. Tufail criticized the agreements for their role in escalating production costs, which he claims are causing foreign buyers to overlook Pakistani exporters. This situation could lead to a decline in economic activity and the cancellation of export contracts. Mr. Tufail highlighted that the high cost of electricity in Pakistan, exacerbated by these IPP agreements, makes it one of the most expensive countries in the region for power.

The agreements require payments in dollars, regardless of whether the electricity is utilized, with only 47.9% of the electricity produced by IPPs being used while payments for 100% are still made. This, coupled with the devaluation of the rupee, complicates the economic scenario further.

Mr. Tufail also criticized the lack of support for alternative energy sources such as wind power within the national system, which continues to make capacity payments to less efficient power plants. He stressed that the government’s inability to plan effectively and these burdensome agreements are placing a significant financial strain on the public.

Officials from the Power Division have also indicated that these Capacity Payment Agreements are a key factor behind the high cost of electricity. Mr. Tufail concluded his remarks by echoing the sentiments of business leaders Gohar Ejaz and S.M. Tanveer, who believe that recent increases in electricity prices will not mitigate the circular debt nor enhance the electricity system, but will merely cover the capacity payments to power plants. He urgently called for the government to revisit these agreements in consultation with the business community to prevent further economic downturns.