Usually there are three parties in these agreements.

1. State of Pakistan

2. Someone with dollars (the investors)

3. Local businessman who are willing run the power plant.

The three parties come to an agreement on what the minimum returns should be on the investment. Say 10% annual. Then the investors give money to the businessman, who then import the power plant equipment and start operating it. The state-run electricity distribution companies buys from the power plant as needed and pays them the unit price set by the State of Pakistan. Part of this is converted into dollars at some pre-agreed rate and transferred to the investors.

In all this, if the total returns to the investor are above 10%, then all is good. However, if the grid demand has fallen, and the distribution company didn't buy a lot of units from the power plant, then the State of Pakistan has to step in and give the investors the difference to make up the 10% returns.

Yes, it is an insane system.

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bofadeez 38 minutes ago | parent [-]

State capitalism like you described totally undermines the price system by replacing profit-and-loss–guided entrepreneurial calculation with political allocation of resources, thereby rendering economic calculation increasingly impossible and eroding the coordinating function of the market process.

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kragen 32 minutes ago | parent [-]

Yes, but nobody has found a more effective way to build infrastructure in poor countries. State capitalism as described is how infrastructure development happened in Indonesia, Malaysia, Taiwan, Hong Kong, Korea, Japan, Vietnam, Thailand, etc.

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bofadeez 26 minutes ago | parent [-]

The fact that infrastructure was built under state capitalism does not demonstrate the superiority of central planning, only that capital accumulation occurred despite intervention, often financed by prior scarcity, foreign savings, or coerced transfers; absent market prices and entrepreneurial profit-and-loss, the state cannot know whether the infrastructure created was the most value-productive use of scarce resources, only that concrete and steel were poured.

	▲	kragen 19 minutes ago \| parent [-]
		I think it demonstrates the increased variance of central planning. The Congo Free State was also centrally planned, and so was the Holocaust, the Holodomor, the Armenian Genocide, Suharto's mass murder of suspected PKI sympathizers, etc. But the expected outcome for poor countries is that they stay poor and don't develop into industrialized export giants the way my laundry list of countries did.