Through “mutual consent.”
That’s how the government has veiled its termination of contracts between state-owned power purchasing companies and five privately owned power producing ones. This phrase—mutual consent—is a gussying up of the seasonal fits against the private sector.
In the late-1990s, according to a World Bank report, the government coerced Independent Power Producers (IPPs), including through intimidation of family members of IPP principals. The companies did reduce tariffs, but simultaneously had their contracts extended. The exercise ended up a wash; but jolted business sentiment in Pakistan’s economy, especially from foreign investors.
Then there was Iftikhar Chaudhry, the disgraced former Chief Justice of Pakistan, who along with his accomplice justices, took a wrecking ball to the economy in rages of populist fervor. Chaudhry brought us several costly disasters, including Reko Diq, from where a solid consortium of foreign mining companies was arrogantly expelled. This consortium had already invested some $250 million in advance of the billions it had committed. Eventually, post-Chaudhry and post-international arbitration, Pakistan had to go back to this consortium—on its knees.
More recently, Imran Khan’s government used its ally Lt. Gen. Faiz Hameed, the now retired and disgraced former chief of Pakistan’s spy apparatus, to bully power companies into amending contracts with the public sector, again, through “mutual consent.”
While it’s true that some of the 33 privately owned power producers have engaged in questionable practices, such as manipulating fuel-consumption figures, the broader tactic of heavy-handed renegotiation is deeply problematic.
Such arm-twisting undermines trust among investors and the business community. While concerns over rising power costs are understandable, Pakistan’s continued attempts to rewrite or terminate contracts carry far greater long-term risks. The erosion of investor confidence is a steep price to pay, one that is difficult to quantify but significant in its impact.
Contracts, especially those related to large-scale infrastructure projects, rely on trust and predictability. The sanctity of contracts is not just a legal principle; it is a fundamental pillar of economic development, providing the security and trust necessary for businesses to invest and grow. Revisiting executed contracts is short-termism that weakens the long-term credibility of the nation’s legal and regulatory framework.
The government needs to find a happy balance between managing its fiscal burden and honoring its contractual commitments. Only then can Pakistan say it is truly open for business.