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Electricity generated from an identical natural resource reveals a pronounced structural disparity, with tariffs from publicly owned hydropower facilities and privately operated IPPs differing by more than twofold.
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By way of illustration, public sector hydropower projects supply electricity at approximately PKR 3.8 to 5 per unit, whereas private hydropower IPPs charge in the range of PKR 8 to 10 per unit.
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In Pakistan, the policy framework has extended guaranteed returns on equity of 15 to 17 percent to IPPs. By comparison, equivalent infrastructure investments in most international jurisdictions typically operate within a return band of 6 to 8 percent.
🟨 How Can Pakistan’s Electricity System Be Fixed? Episode 7 Written by Syed Shayan
This instalment examines hydropower in detail, with particular emphasis on current generation levels, its contribution to the national energy mix, and the underlying cost structure.
A defining feature of Pakistan’s recent hydropower development is the predominance of run of river schemes. These projects possess limited storage capacity and, unlike large reservoir based systems such as Tarbela and Mangla, are unable to provide sustained and dispatchable generation throughout the year.
Hydropower output in Pakistan is inherently seasonal. During winter months, reduced river flows constrain generation, necessitating greater reliance on higher cost sources of electricity. Notwithstanding this variability, hydropower remains the only major energy source that is effectively insulated from fuel costs and international price volatility. Despite this structural advantage, policy orientation has remained disproportionately aligned with private sector generation.
Peak electricity demand in Pakistan typically rises to between 40,000 and 45,000 MW during the summer period. Concurrently, the country’s estimated hydropower potential exceeds 60,000 MW.
However, actual hydropower generation currently stands at approximately 10,000 to 11,000 MW. This disparity underscores a persistent underutilisation of a low cost, indigenous resource, while the system continues to depend on comparatively expensive generation sources, particularly IPPs.
Hydropower accounts for approximately 24 to 30 percent of Pakistan’s overall energy mix. This contribution is primarily derived from large scale public sector assets, including Tarbela, Mangla, Ghazi Barotha, and Neelum Jhelum. These facilities, under state ownership, represent some of the lowest cost generation sources within the national system.
Electricity demand in Pakistan exhibits pronounced seasonal variation. During summer, demand peaks within the 40,000 to 45,000 MW range, whereas winter demand declines to approximately 25,000 to 30,000 MW.
Although hydropower output fluctuates in line with water availability, it consistently contributes roughly one quarter of total electricity supply. This indicates that domestic natural resources continue to provide a foundational stabilising role within the system.
At present, Pakistan’s hydropower portfolio is dominated by public sector ownership, primarily under WAPDA, with private sector participation limited to a small number of projects.
A summary of major hydropower installations is provided below.
🔹 Public Sector Hydropower Projects
Tarbela Dam 4,888 MW owned by WAPDA Mangla Dam 1,310 MW owned by WAPDA Ghazi Barotha 1,450 MW owned by GHCL and Government of Pakistan Neelum Jhelum 969 MW owned by WAPDA Warsak 243 MW owned by WAPDA Rasul 22 MW owned by WAPDA Chashma Hydel 184 MW owned by WAPDA Jinnah Hydel 96 MW owned by WAPDA Duber Khwar 130 MW owned by WAPDA Golen Gol 108 MW owned by WAPDA
🔹 Private Sector Hydropower Projects IPPs
Karot Hydropower River Jhelum 720 MW owned by China Three Gorges Suki Kinari Kaghan Mansehra 884 MW owned by China Gezhouba Gulpur Hydropower Azad Kashmir 102 MW owned by a Korean consortium Laraib Hydropower New Bong Escape 84 MW owned by Hubco and Government of Azad Kashmir Patrind Hydropower Azad Kashmir 147 MW owned by Star Hydropower with Korean sponsors
This distribution indicates that, of the fifteen major hydropower projects considered, ten are publicly owned, while five operate under private ownership. Notably, four of the private projects are fully foreign owned, with Laraib Energy Limited representing limited domestic participation through the Hubco Group.
The central issue, however, lies in the tariff differential. Why does electricity generated from the same water resource cost approximately PKR 3 to 5 per unit in public projects, yet between PKR 8 and 10 per unit or higher in private hydropower IPPs?
The explanation is rooted in financial structure and project vintage.
Legacy public sector projects such as Tarbela and Mangla were constructed several decades ago. Their capital costs have largely been amortised, and current tariffs primarily reflect operation and maintenance expenditures. As a consequence, these projects deliver electricity at a marginal cost of approximately PKR 3.8 to 5 per unit, effectively providing an implicit cross subsidy to the broader power system.
By contrast, private hydropower IPPs have been developed under contemporary financing models characterised by commercial debt, foreign equity participation, and dollar indexed returns. These projects are structured to recover both capital investment and profit over concession periods typically spanning 25 to 30 years. Their tariff regimes incorporate capacity charges, indexation mechanisms, and exchange rate adjustments, resulting in levelised tariffs in the range of PKR 7 to 10 per unit or higher, with an inherent upward trajectory.
A further determinant is the policy framework governing returns. The Government of Pakistan has extended guaranteed returns on equity in the range of 15 to 17 percent for hydropower investments. In developed economies, comparable infrastructure assets typically yield returns of 6 to 10 percent, while emerging markets generally operate within a band of 10 to 14 percent. In Pakistan, elevated perceived risk has been compensated through higher guaranteed returns, frequently indexed to the US dollar. Consequently, currency depreciation directly translates into higher electricity tariffs.
It is therefore evident that, despite originating from the same water resource, electricity generated by private hydropower projects is structurally more expensive than that produced by legacy public sector assets.
To be continued in the next instalment.
🟨 How Can Pakistan’s Electricity System Be Fixed? Episode 7 Written by Syed Shayan
This instalment examines hydropower in detail, with particular emphasis on current generation levels, its contribution to the national energy mix, and the underlying cost structure.
A defining feature of Pakistan’s recent hydropower development is the predominance of run of river schemes. These projects possess limited storage capacity and, unlike large reservoir based systems such as Tarbela and Mangla, are unable to provide sustained and dispatchable generation throughout the year.
Hydropower output in Pakistan is inherently seasonal. During winter months, reduced river flows constrain generation, necessitating greater reliance on higher cost sources of electricity. Notwithstanding this variability, hydropower remains the only major energy source that is effectively insulated from fuel costs and international price volatility. Despite this structural advantage, policy orientation has remained disproportionately aligned with private sector generation.
Peak electricity demand in Pakistan typically rises to between 40,000 and 45,000 MW during the summer period. Concurrently, the country’s estimated hydropower potential exceeds 60,000 MW.
However, actual hydropower generation currently stands at approximately 10,000 to 11,000 MW. This disparity underscores a persistent underutilisation of a low cost, indigenous resource, while the system continues to depend on comparatively expensive generation sources, particularly IPPs.
Hydropower accounts for approximately 24 to 30 percent of Pakistan’s overall energy mix. This contribution is primarily derived from large scale public sector assets, including Tarbela, Mangla, Ghazi Barotha, and Neelum Jhelum. These facilities, under state ownership, represent some of the lowest cost generation sources within the national system.
Electricity demand in Pakistan exhibits pronounced seasonal variation. During summer, demand peaks within the 40,000 to 45,000 MW range, whereas winter demand declines to approximately 25,000 to 30,000 MW.
Although hydropower output fluctuates in line with water availability, it consistently contributes roughly one quarter of total electricity supply. This indicates that domestic natural resources continue to provide a foundational stabilising role within the system.
At present, Pakistan’s hydropower portfolio is dominated by public sector ownership, primarily under WAPDA, with private sector participation limited to a small number of projects.
A summary of major hydropower installations is provided below.
🔹 Public Sector Hydropower Projects
Tarbela Dam 4,888 MW owned by WAPDA Mangla Dam 1,310 MW owned by WAPDA Ghazi Barotha 1,450 MW owned by GHCL and Government of Pakistan Neelum Jhelum 969 MW owned by WAPDA Warsak 243 MW owned by WAPDA Rasul 22 MW owned by WAPDA Chashma Hydel 184 MW owned by WAPDA Jinnah Hydel 96 MW owned by WAPDA Duber Khwar 130 MW owned by WAPDA Golen Gol 108 MW owned by WAPDA
🔹 Private Sector Hydropower Projects IPPs
Karot Hydropower River Jhelum 720 MW owned by China Three Gorges Suki Kinari Kaghan Mansehra 884 MW owned by China Gezhouba Gulpur Hydropower Azad Kashmir 102 MW owned by a Korean consortium Laraib Hydropower New Bong Escape 84 MW owned by Hubco and Government of Azad Kashmir Patrind Hydropower Azad Kashmir 147 MW owned by Star Hydropower with Korean sponsors
This distribution indicates that, of the fifteen major hydropower projects considered, ten are publicly owned, while five operate under private ownership. Notably, four of the private projects are fully foreign owned, with Laraib Energy Limited representing limited domestic participation through the Hubco Group.
The central issue, however, lies in the tariff differential. Why does electricity generated from the same water resource cost approximately PKR 3 to 5 per unit in public projects, yet between PKR 8 and 10 per unit or higher in private hydropower IPPs?
The explanation is rooted in financial structure and project vintage.
Legacy public sector projects such as Tarbela and Mangla were constructed several decades ago. Their capital costs have largely been amortised, and current tariffs primarily reflect operation and maintenance expenditures. As a consequence, these projects deliver electricity at a marginal cost of approximately PKR 3.8 to 5 per unit, effectively providing an implicit cross subsidy to the broader power system.
By contrast, private hydropower IPPs have been developed under contemporary financing models characterised by commercial debt, foreign equity participation, and dollar indexed returns. These projects are structured to recover both capital investment and profit over concession periods typically spanning 25 to 30 years. Their tariff regimes incorporate capacity charges, indexation mechanisms, and exchange rate adjustments, resulting in levelised tariffs in the range of PKR 7 to 10 per unit or higher, with an inherent upward trajectory.
A further determinant is the policy framework governing returns. The Government of Pakistan has extended guaranteed returns on equity in the range of 15 to 17 percent for hydropower investments. In developed economies, comparable infrastructure assets typically yield returns of 6 to 10 percent, while emerging markets generally operate within a band of 10 to 14 percent. In Pakistan, elevated perceived risk has been compensated through higher guaranteed returns, frequently indexed to the US dollar. Consequently, currency depreciation directly translates into higher electricity tariffs.
It is therefore evident that, despite originating from the same water resource, electricity generated by private hydropower projects is structurally more expensive than that produced by legacy public sector assets.
To be continued in the next instalment.