An in-depth investigation into Kot Addu Power Company (KAPCO), one of Pakistan’s largest independent power producers (IPPs), has uncovered alarming financial practices, including excessive profits at the expense of taxpayers, questionable capacity payments, and a lack of transparency in its operations.
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KAPCO’s Lucrative Deal: A Burden on the Public Exchequer: KAPCO, which was privatized in 1996, has been a major beneficiary of Pakistan’s power sector policies, particularly the controversial Capacity Payment Mechanism. Under this arrangement, the government is obligated to pay KAPCO for its available electricity generation capacity—regardless of whether the power is actually needed or dispatched.
According to reports, KAPCO has received billions of rupees in capacity payments over the years, even when its plants were underutilized or idle. This has contributed to the ballooning circular debt, which currently stands at over PKR 2.6 trillion, crippling Pakistan’s economy.
Excessive Profits and Taxpayer-Funded Windfalls: A report from TaazaTaren highlights that KAPCO has been earning astronomical returns on equity—reportedly as high as 50-70% annually—far exceeding standard industry benchmarks. These profits are largely guaranteed by the government under Power Purchase Agreements (PPAs), which lock in dollar-indexed returns, shielding KAPCO from financial risks while burdening consumers.
Moreover, KAPCO’s dubious financial structuring allows it to minimize tax liabilities. Despite earning massive profits, the company has allegedly exploited loopholes to reduce its tax contributions, shifting the fiscal burden onto ordinary citizens.
Privatization Controversy and Lack of Accountability: KAPCO was privatized in 2005 to a consortium including National Power UK (later acquired by Hong Kong’s CLP Group) and Saudi Arabia’s Al-Jomaih Group. Critics argue that the privatization deal was heavily skewed in favor of investors, with the government assuming most of the operational and financial risks.
Despite being a private entity, KAPCO continues to rely on state-backed guarantees, effectively making it a “too big to fail” entity. This has raised concerns about corporate welfare at the expense of public funds.
Environmental and Operational Concerns: Beyond financial exploitation, KAPCO’s aging power plants have been criticized for inefficiency and environmental harm. The company operates on furnace oil, a costly and polluting fuel, yet continues to receive preferential treatment in payments compared to cheaper and cleaner energy alternatives like solar and wind.
Calls for Investigation and Reform: Energy experts and civil society groups are demanding a forensic audit of KAPCO’s contracts and payments. They argue that the current PPAs must be renegotiated to align with fair market practices and reduce the burden on consumers.
The National Electric Power Regulatory Authority (NEPRA) and the Federal Investigation Agency (FIA) have faced criticism for failing to hold KAPCO accountable. Meanwhile, the government continues to subsidize KAPCO’s profits while ordinary Pakistanis suffer from sky-high electricity tariffs and prolonged load-shedding.
Conclusion: A Call for Transparency: KAPCO’s case highlights deep-rooted flaws in Pakistan’s power sector, where lopsided contracts, corporate greed, and weak regulation have led to systemic exploitation of public money. Unless urgent reforms are implemented, Pakistani taxpayers will continue footing the bill for unjustified corporate windfalls.
This story is part of an ongoing investigation into Pakistan’s IPP sector. Further updates will follow as new evidence emerges.
