🔲 Public Investigative Series | Episode 23
Subject: How can Pakistan’s electricity system be fixed?
Title: The role of former Federal Minister for Water and Power Ghulam Mustafa Khar in IPPs
🔺 When institutions refrain from providing facts, it becomes the responsibility of the public to reach the truth.
Research and Writing: Syed Shayan
Mr.Ghulam Mustafa Khar, former Federal Minister for Water and Power, under whose tenure a controversial power policy was introduced to establish IPPs.
The foundation of Independent Power Producers (IPPs) in Pakistan was laid under the 1994 Power Policy, which was introduced during the second tenure of Benazir Bhutto and implemented as official state policy by the then Federal Minister for Water and Power, Ghulam Mustafa Khar. According to available ministerial records, he held this office from 26 January 1994 to 5 November 1996.
During this same period, in 1994, a set of incentives was offered for the first time to attract investors under this policy, and in return for the Government of Pakistan’s Sovereign Guarantee, the state assumed long term financial obligations of IPPs. A Sovereign Guarantee is a government backed assurance in which the state takes full responsibility for financial obligations or repayments. If the primary party fails to pay, the government is legally bound to fulfil the payment.
These incentives included:
1. Capacity payments
2. Dollar indexation
3. Guaranteed returns
4. Sovereign guarantee of the Government of Pakistan
In principle, it can therefore be stated that the foundation of today’s IPP system and Pakistan’s first power policy was introduced during the second tenure of Benazir Bhutto by Minister Ghulam Mustafa Khar, under which more than 70 Memorandums of Understanding were issued to Independent Power Producers.
The policy implemented by Ghulam Mustafa Khar as Minister for Water and Power was not only retained by successive governments but was further expanded in every subsequent period.
Research also indicates that during the implementation of the 1994 Power Policy, an extraordinary level of secrecy was maintained among government officials regarding IPP matters. Even the methodology for tariff calculation was never presented for public scrutiny, and WAPDA refused to share its data on the grounds that it was “sensitive.”
From a broader perspective, the roots of lack of transparency and information asymmetry in Pakistan’s energy sector were also established during this early phase, when the Independent Power Producer model was introduced and contractual terms were restricted to a limited group of individuals.
At the same time, this policy was described by U.S. Energy Secretary Hazel O’Leary as “one of the best energy policies in the world.” In September 1994, Hazel O’Leary visited Pakistan for five days, marking the first purely economic visit by a U.S. cabinet level official, as earlier high level visits were primarily military in nature. She was accompanied by 70 American business representatives, and the level of interest was so high that the U.S. government had to charter a large aircraft. During this visit, energy agreements worth more than 4 billion dollars were signed.
Hazel O’Leary later became involved in multiple controversies during the Clinton administration. An audit by the Government Accountability Office criticised her for excessive spending on international visits and unusually high accommodation expenses. The large trade delegation to Pakistan was also part of those controversial trips, which were later questioned by the U.S. Congress and the Inspector General. She subsequently apologised before congressional committees in 1996 and resigned in January 1997.
(To be continued in the next episode)