Zafar Iqbal
Pakistan’s policymakers are making extraordinary efforts to attract foreign direct investment. Red carpets are being rolled out, business delegations are arriving, and speeches promising economic revival are echoing in conferences. Yet, despite this activity, little progress can be seen beyond a growing list of memorandums of understanding. Investors, however, are not swayed by ceremonies; they look for consistent policies, clear contracts, and a trustworthy system of governance.
The reality is stark. Pakistan continues to offer international investors lucrative incentives — tax breaks, sovereign guarantees, and special concessions — yet fails to protect those who have already invested. The contradiction between promises and performance has created an image of instability. Investors value certainty above all else; they will not risk capital in an environment where rules change overnight, and commitments are casually reversed.
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The energy sector illustrates this inconsistency vividly. Over three decades, Pakistan introduced multiple Independent Power Producer (IPP) policies — in 1994, 2002, and 2015 — each aiming to attract much-needed investment in electricity generation. Initially, Western companies responded enthusiastically, but they never returned after their experience with changing rules and political pressures. The 2015 policy succeeded mainly because of Chinese investment under CPEC, yet even those investors are now hesitant, observing how earlier agreements were renegotiated.
The case of K-Electric (KE) is particularly alarming. As the only private electricity distributor in Pakistan, KE invested heavily to modernize Karachi’s power infrastructure. Instead of appreciation, it faces arbitrary treatment. The National Electric Power Regulatory Authority (Nepra) recently slashed KE’s approved tariff based on unrealistic assumptions, causing heavy financial losses. The company’s Saudi shareholders, frustrated by these policy reversals, are considering taking the dispute to international arbitration. What signal does this send to foreign investors — especially those from friendly nations like Saudi Arabia?
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Such incidents expose the credibility crisis within Pakistan’s economic governance. The government talks of privatisation and deregulation while simultaneously harassing existing investors. How can new buyers be expected to invest in public utilities when the state itself undermines investor confidence? Business thrives on predictability, not on political moods or bureaucratic discretion. Without trust and legal protection, no amount of incentives can compensate for an unreliable system.
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Energy pricing remains another challenge. Many costs in this sector are social — such as ensuring uniform tariffs and access for all consumers — but the private sector cannot bear these burdens alone. There must be transparent mechanisms to balance commercial interests and public welfare. Unfortunately, rather than addressing structural issues, the authorities seem more interested in scapegoating private companies. Nepra’s reversal of KE’s multi-year tariff — just months after approval — undermines regulatory credibility and discourages future investment.
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Foreign investors monitor these developments closely. Every regulatory reversal, public criticism, or political statement against a private investor damages Pakistan’s image as a safe destination for investment. If the government wants credibility, it must start by respecting contracts, upholding transparency, and ensuring fair arbitration in case of disputes. Investors judge countries not by their promises but by their treatment of those already in business.
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If Pakistan continues down this path, it should stop inviting investors into sectors with high social and political risks, such as power distribution. No private company will invest where policy uncertainty dominates. Even domestic investors will hesitate if they fear future coercion or arbitrary regulation. India offers a practical lesson: it selectively allows foreign investment in sectors it can regulate effectively, ensuring stable rules and clear commitments. Pakistan must follow the same pragmatic model to rebuild trust.
Investment confidence cannot be built through rhetoric or roadshows. It grows from consistency, fairness, and respect for the rule of law. The government must think long-term, prioritising credible governance over temporary gains. Only then will Pakistan attract sustainable investment that fuels growth rather than fleeting headlines. Without reforming the governance mindset, even the best economic policies will remain wishful thinking.
