🔳 Salman Faruqui and the decisions of the Ministry of Water and Power that tied the hands of every government that followed, and pushed Pakistan into a vicious cycle of capacity payments, dollar indexation, imported fuel, government guarantees and Take or Pay contracts, a cycle from which the country has still not been able to break free.
The question is simple. Politicians lose elections and go home, but how has this system continued on the same track for decades? Why did the governments that came later fail to correct it?
Public Investigative Series | Episode 38
Topic: How can Pakistan’s electricity system be fixed?
Title: The current electricity crisis and the bureaucratic mindset
🔺 When institutions avoid sharing facts, the responsibility of reaching the truth falls on the public.
Written and researched by Syed Shayan
In the history of Pakistan’s bureaucracy, Salman Faruqui is one of the names most closely associated with the present structure of Pakistan’s power sector, particularly the first IPP policy of 1994.
During the 1990s, under Benazir Bhutto’s government, he held key positions as Secretary of Water and Power and Secretary of Petroleum. He later also served as Principal Secretary.
As head of the Ministry of Water and Power, the policy prepared during his tenure laid down certain principles that later became a noose around Pakistan’s neck.
According to the record, the 1994 Power Policy granted extraordinary incentives to private power producers. These included capacity payments under the Take or Pay framework, dollar linked returns and government guarantees for investors. The Ministry of Water and Power played a central role in the preparation, drafting and official approval of this policy. As head of the ministry at that time, Salman Faruqui was institutionally placed at the centre of the policy process, while his ministry played a decisive role in preparing, processing and securing official approval for the 1994 Power Policy.
In later years, whenever IPP contracts came under investigation, whether through Saifur Rehman’s accountability cell during the Nawaz Sharif era, NAB investigations or the reports of the Muhammad Ali Committee in the present period, the record repeatedly showed that the terms of these contracts were shaped and processed within the Ministry of Water and Power before being placed before the cabinet for approval.
Politicians kept changing, but the continuity created at the technocratic and bureaucratic level became a pace setter for the policies of 2002 and 2015. Pakistan has still not been able to come out of that model.
The real issue is that the 1994 IPP policy did not merely bring a few power plants into the system. It created a template on which every subsequent government kept signing. No one asked how long the people of Pakistan would continue to carry the burden of capacity payments, dollar indexation, imported fuel, government guarantees and Take or Pay clauses built into that template.
In 1994, when the country was facing severe load shedding, the bureaucracy found a quick and convenient solution. Private investors were offered almost every condition they demanded. The purpose was to bring electricity quickly, satisfy the government and push the crisis down for the time being.
But in that haste, a formula for power contracts was created that trapped Pakistan’s power sector for the next 40 to 50 years. Whether electricity was purchased or not, whether plants operated or remained idle, whether the dollar rose or the rupee fell, the public still had to pay capacity payments.
This was the basic mistake that later governments also accepted instead of correcting. It was repackaged as a Standard Bankable Model. The government, NEPRA, CPPA, the Ministry of Water and Power and other policy making institutions kept using the same template again and again. In this way, the mistake was not made once. It was repeated continuously.
Whenever a new government raised the question of why capacity payments, dollar indexation or government guarantees were necessary, it was given the same answer: investment would only come under this model, banks would only finance projects on this structure and this was considered a bankable structure across the world. In other words, a wrong foundation was first laid, and then that same mistake was normalised by presenting it as an international standard.
The real problem was not merely policy engineering. It was the capture of the power sector by a particular mindset of vested interests. Under this mindset, demand risk, currency risk and capacity risk were all shifted to the state and the public, while investors were given almost risk free profits. Whether people used electricity or not, whether plants ran or stayed shut, payments to investors continued through electricity bills paid by the public.
The roots of Pakistan’s current economic crisis and circular debt are not limited to political decisions. They are deeply embedded in decades old bureaucratic and technocratic engineering. When we examine the documentary record in depth, it becomes clear that politicians have mostly remained the front face, while the real chessboard was laid by bureaucratic and technocratic minds.
There are three aspects of this bureaucratic mindset that are responsible for making this crisis permanent.
1. Short term fixes and turning away from the future
In 1994, when the country was facing severe load shedding, the bureaucracy had a better path available. It could have advised the government to move towards electricity generation based on Pakistan’s own natural resources. The hydropower system could have been strengthened further, ongoing WAPDA projects could have been accelerated, a solar power policy could have been introduced, wind energy could have been opened up and a sustainable energy structure based on local resources could have been built.
This was not impossible. Solar projects could be installed in a relatively short time. Several parts of Sindh and Balochistan were naturally suitable for wind power. Pakistan already had experience in hydropower generation. In other words, the path existed, the resources existed and the institution existed. What was missing among the decision makers was foresight and a serious understanding of national interest.
Instead, they chose a path that was already becoming outdated in many parts of the world: expensive power plants based on coal, gas and imported fuel, dollar linked contracts, costs running into billions and conditions whose burden would be carried by future generations.
Our bureaucracy gave private investors almost every facility and protection they demanded for setting up power plants based on coal, gas and imported fuel. Long term contracts of 30 to 35 years, indexation against rupee depreciation, fuel supply guarantees, dollar linked payments, operation and maintenance costs and capacity payments fully protected investor interests. But the future burden on the public, industry and the national economy was ignored. State policy was diverted away from public interest and towards investor comfort and satisfaction.
2. Bureaucratic supremacy beyond accountability, also known as technocratic immunity
Politicians have to contest elections. They are answerable to the public and often face courts and accountability proceedings. In contrast, this particular bureaucratic class remains behind the scenes and moves the real pieces of policy making.
Whether it was Salman Faruqui or other powerful secretaries before and after him, the federal cabinet often gave only formal approval to the drafts and contracts prepared by them. In effect, this became a process of rubber stamping, because the entire control of technical briefings remained with the same class.
When bureaucracy presents a particular policy or foreign agreement as the only technical solution in the national interest, political leadership is left with little real choice except to sign it, especially when it lacks independent technical expertise and independent research of its own.
3. Institutional inertia within departments
The entire training structure of our civil service produces officers who follow old lines and avoid risk. The bureaucracy rarely shows the ability to design a new, creative or revolutionary model. It usually relies on old colonial era methods or templates handed down by institutions such as the World Bank.
The tragedy of this mindset is that it gives little value to the views of local experts, engineers and think tanks within institutions such as the Ministry of Energy or NEPRA. Bureaucracy has generally shown blind trust in reports prepared by foreign firms and IMF or World Bank consultants.
Pakistan’s strategic power sector plans, such as IGCEP, and the drafts of major contracts are often prepared by foreign consultants who do not fully understand Pakistan’s ground realities, inflationary shocks and the purchasing power of poor citizens. Bureaucracy then gets these complex technical reports approved by the cabinet without applying any effective national filter.
Similarly, once a particular structure of incentives for IPPs was created in 1994, the bureaucracy gradually lost the ability to think beyond it. It pushed the entire electricity system into the orbit of imported fuel, dollar indexation and capacity payments.
That is why, when new policies were framed in 2002 and then again in 2015, the same old mindset inside the ministry did not design a new local and low cost model. Instead, it reintroduced the same old engineering under new names.
[To be continued in the next episode.]
