Pakistan’s Energy Contract Renegotiation Spurs Global Lender Backlash
Introduction
In February 2025, eight international development finance institutions—including the World Bank’s International Finance Corporation (IFC), Asian Development Bank (ADB), and Islamic Development Bank (IsDB) publicly criticized Pakistan’s approach to renegotiating wind and solar power purchase agreements (PPAs). The letter, dated February 18, warned that the country’s non-consultative, unilateral moves risk damaging investor trust and hindering the long-term growth of the clean energy sector.
What Sparked the Backlash?
- Governance concerns
The lenders argued that renegotiating contracts without prior notice or lender approval undermines the sanctity of contracts—an essential underpinning of investor confidence. Many of these projects were backed with sovereign guarantees. - Military-led approach
Reports followed that talks were led by Pakistan’s powerful military and intelligence agencies within military installations, where investors allegedly felt pressured under threat of probes into unrelated business ventures. - Investments at risk
These institutions disclosed they have poured around US $2.7 billion into Pakistan’s clean energy sector over the past decade and emphasized that even experienced power producers aren’t permitted to amend project documents like PPAs without written approval.
Government’s Response
- Denials of coercion
Muhammad Ali, the Prime Minister’s energy advisor, refuted claims of military coercion, calling the talks “civilian‑led,” “amicable and cordial.” He insisted any impact on investor returns would be limited. - Sovereign guarantees in place
The government assured that sovereign guarantees continue to protect investments. However, many projects remain vulnerable because they may face currency misalignment due to rupee devaluation. - Audit threats for inflated costs
Officials suggested some wind firms may have exaggerated costs. A forensic audit was announced to validate claims.
Broader Implications for Pakistan’s Clean Energy Landscape
Investor Confidence & Sector Growth
Unilateral revisions to existing contracts shake the foundation of trust, dampening not just past investors but future foreign capital essential for virtually all upcoming solar and wind projects.
Foreign Direct Investment at Stake
IFC’s leader Makhtar Diop has committed to invest $2 billion annually in Pakistan over the next decade. But lender concerns about contract sanctity may jeopardize or delay this support.
Consumer Tariff Relief vs Sustainability
While renegotiations aim to bring down steep tariffs (saving up to Rs 1 trillion or ~US $3.6 billion), experts warn that compromising contracts could undermine long-term sector stability and financing.
International Development and IMF Ties
These developments unfold amid Pakistan’s engagement with the IMF’s $7 billion program, including climate financing discussions under the Resilience and Sustainability Trust. Both lenders and multilateral institutions expect credible reform and contract predictability.
