A power sector malady

In 1995, the 1,292 megawatt (MW), $1.6 billion Hub Power Project was hailed as an important precedent for the viability of private finance for a major infrastructure project in a developing country. No other low-income country had made private investments a cornerstone of its energy policy at that point in time. This strategy was a reflection of hard economic realities: an unsustainable fiscal deficit, a serious balance of payment situation, and the inability of the public sector to finance investments needed to keep pace with power demand. The experience led Pakistan to adopt its first private power policy, under which the government contracted 3,400MW capacity with 19 independent private power projects (IPPs). However, by 1998, the second Nawaz Sharif government had issued notices of intent to terminate 11 IPPs, representing two-thirds of private power capacity contracted, on alleged corruption and/or technical grounds.