ISLAMABAD: Pakistan’s largest export body, the All Pakistan Textile Mills Association (Aptma), has questioned government targets to expand generation capacity by 50 per cent to 64,000 megawatts over 2025-35, calling them unrealistic and requiring about $50 billion of investment that would lock in “high-cost power”.
In a detailed set of objections to the National Electric Power Regulatory Authority (Nepra), Aptma demanded a stringent reality check of the exaggerated demand forecasts based on population and GDP growth, allegedly without taking into account ground realities taking shape in the country and the power sector.
The association said it has “a fundamental issue with the demand-forecasting methodology, which undermines the credibility of the entire plan” and suggested a broader set of priorities for incorporation in the Indicative Generation Capacity Expansion Plan (IGCEP 2025-35) “to realign energy planning with on-the-ground economic realities and critical need for affordability and competitiveness in power tariffs”.
It said the IGCEP employed an overly simplistic and rather incorrect statistical (regression) model that linked grid electricity consumption to GDP growth, population growth and similar macro variables. The underlying assumption is that as the economy and population expand, grid demand will rise proportionally.
However, this approach could not account for substitution effects arising from captive power (gas or furnace-oil generators), rooftop solar (or distributed solar), gas-fired boilers, solar water heaters, electric stoves, and other decentralised energy sources, which increasingly serve as alternatives to grid electricity.
“In omitting these, the model incorrectly absorbs their influence into the residual, attributing too much of the growth in economic activity to increased grid consumption. The result is a systematic overstatement of grid demand growth,” Aptma said.
Such a plan had econometric and statistical implications, it said, adding that the endogeneity problem with the model was that when substitutes are omitted, their effects get absorbed in the error term. Since GDP and population growth also drive adoption of captive and solar among other non-grid sources of energy, the error term becomes correlated with the regressors.
This endogeneity correlation also leads to biased and inconsistent estimates in the statistical sense of the terms, as the elasticity of grid demand with respect to GDP and population growth is exaggerated.
“In Pakistan’s context, where non-grid sources of energy are growing rapidly, the structural bias leads to a systematic overestimation of future grid demand,” it said, adding that this meant the forecast for grid demand was too high because the model ignored alternative energy sources.
“This upward bias encourages excessive generation additions, which in turn produce inflated capacity payments, stranded assets, and heightened financial stress in the system,” the association said, alleging that IGCEP’s demand forecast was upward-biased by design.
Moreover, the econometric issue of endogeneity meant that results were unreliable and, in practice, overestimated.
“This problem has been prevalent throughout the years, and its implications are visible in the massive stranded capacity on the grid and the resulting escalation of power tariffs”, Aptma said, adding that it was not a minor technicality but a fundamental flaw in the power sector’s demand forecast. The same “flawed methodology” is also used to estimate demand for consumer tariff determinations, meaning that those forecasts, too, are systematically flawed and biased.
This becomes even more perilous given the fact that IGCEP itself acknowledged that the energy and power demand forecast was the basis for all planning activities in the power sector. It is one of the decisive inputs for the generation planning (Planning Code (PC-4) of Grid Code 2023).
“This makes the flaw monumental because if the foundation is faulty, the entire edifice of planning collapses. A biased demand forecast, hence, makes the entirety of the subsequent planning exercise unreliable, leading to mis-investment, excess costs, and inflated tariffs,” it asserted.
Aptma observed that unless affordability was made the central organising principle of energy planning, the IGCEP will continue to reinforce the problems feeding to the runaway escalation of capacity payments, which had increased from Rs2 per unit to Rs17.06 per unit in about 10 years and now consume over half of the consumer tariff and cumulatively amount to more than Rs6 trillion over the past decade — exceeding the total fuel cost in the system.
“Such levels are clearly unsustainable in a country already constrained by weak fiscal space, dwindling industrial growth, and limited affordability,” Aptma said.
It demanded that “no new generation addition should be justified without first reducing this burden to below Rs5 per unit. This ceiling must become a binding benchmark in all future planning and approvals” to inject discipline into a planning environment long driven by megawatt targets, donor pressures, and short-term paradigms, often at the expense of consumer capacity to pay.
Aptma also pointed out that the country currently faced demand stagnation, overcapacity, and stranded risk, and the planning should address these challenges. It said the industrial demand in FY2025 declined by around 4pc, and agricultural consumption plunged by more than one-third as farmers turned to diesel and solar alternatives.
This meant the national demand growth was stagnant, yet the IGCEP projected an addition of nearly 20,000 MW in capacity. “This mismatch leads to more idle plants, steep fixed costs, and escalating circular debt,” it said.
Published in media, September 29th, 2025
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