A technician ascends while others paint on a power transmission tower in Karachi,

By Asif Shahzad

ISLAMABAD (Reuters) – Pakistan is to set up a commission to probe suspected contract violations by independent power producers which may have cost the national exchequer billions of dollars, officials said on Tuesday.

Hobbled by decades of energy shortages, successive Pakistani governments have pursued private sector investment in power production, offering lucrative returns backed by sovereign guarantees.

But the current government of Prime Minister Imran Khan has decided to look into the contracts after he was presented with a 278-page report by a government committee which outlined a number of alleged transgressions.

“Whoever did anything against the law, or did some misappropriations for which the Pakistani middle class or the poor are paying a heavy price, they would not be forgiven,” said Planning Minister Asad Umar, while announcing the decision by the cabinet to launch the inquiry.

There are about 40 independent power producers and the report did not mention any by name. Company representatives have consistently rejected allegations of wrongdoing but did not immediately comment on the report.

Khan ordered the report, which alleges that some independent power producers made billions of dollars in questionable deals, to be made public, Umar said in a televised news briefing.

The report said cumulative budgetary support for the power sector amounted to 3.202 trillion rupees ($19.93 billion) in subsidies and other liquidity injections from 2007 to 2019.

Yet there were annual losses of around 370 billion rupees due to “power sector inefficiencies”, the report, seen by Reuters, said.

Some of the private sector deals date back as far as 1994. Previous governments said the incentives, including dollar indexation and guaranteed capacity payments, were necessary to attract investors unwilling to put money into an uncertain Pakistani economy.

Up until 2017, prolonged power outages hit the country’s industrial production.

Pakistan’s energy ministry held a meeting with independent power producers last week after some of the report’s contents were leaked to the media, and a statement which followed said it was held to seek “their contribution in rationalization of tariffs”.

Pakistan has a transmission power generation capacity of around 26,000MW, more than half of which comes from independent producers.

($1 = 160.7 rupees)

(Writing by Asif Shahzad; editing by Nick Macfie)