Lessons from the Independent Private Power Experience in Pakistan

The discussion paper reviews the IPP program and concludes with several lessons learned. Se tting a bulk tariff ceiling allowed Pakistan to alleviate its power shortage through private generation in record time; however, too much power was contracted with little regard for least cost expansion. Private investment in generation should be aligned with the country's sector reforms and also social, economic, political and institutional governance. In addition, solicitation of IPPs should be on a competitive basis and staggered over a few years so that changes in international investors' assessment of country and contract risks could lead to declining bid prices. Finally, while the risk of renegotiation can be minimized by competitive bidding and transparent contracts, this risk cannot be wholly avoided. All parties have to recognize that renegotiation is reasonable provided it is done in a mutually acceptable manner.