Arshad Mahmood Awan
Pakistan’s energy crisis continues to be a major challenge, showing no sign of abating. Despite various efforts and interventions, the core issues persist: excessive government involvement, poor planning, and suboptimal execution. These persistent failures are exacerbated by the inefficiency of regulatory bodies and a government that has consistently failed to conduct thorough studies to assess energy demand, leading to decisions that are often driven by political whims and negligence rather than data and foresight.
One of the most glaring issues contributing to the energy crisis is the lack of proper coordination between power generation and distribution. The government’s decision-making process often involves adding new power plants to the grid without considering the need to upgrade transmission and distribution systems, which disrupts the entire energy value chain. The latest report from the National Electric Power Regulatory Authority (NEPRA), “State of the Industry Report,” highlights these dysfunctions, emphasizing the serious shortcomings in the country’s energy sector.
Despite having an installed capacity of 46,000 MW, the power sector utilizes just 33 percent of its capacity annually. This massive underutilization of resources results in a significant waste of potential energy generation, further aggravating the capacity payment problem. With two-thirds of the installed capacity remaining idle, the financial burden on the sector grows, and the inefficiencies that stem from years of flawed planning and unrealistic assumptions become ever more evident.
Moreover, the situation is worsened by the government’s push for cleaner energy sources like solar and wind power, which, although environmentally beneficial, are simultaneously reducing demand for energy from fossil fuel-based plants. While transitioning to renewable energy is a necessary step, it has been implemented without considering its impact on existing fossil fuel plants, leading to further disruptions and inefficiencies within the system. This lack of adaptability and foresight has created a situation where the energy sector is not only underutilized but increasingly out of touch with evolving demand scenarios.
A major contributing factor to this crisis was the rapid expansion of energy generation capacity between 2015 and 2018. This period of growth was based on overly optimistic assumptions that the country’s GDP would grow at a steady 6 percent annually — a target that had never been achieved in Pakistan’s history. Despite warnings from independent economists, the government proceeded with massive investments in new power plants, expecting the energy demand to rise in line with this unrealistic economic growth. As a result, the capacity added during this period remains largely underutilized, contributing to the sector’s financial instability and growing unviability.
This surplus capacity, which was based on misguided predictions, now lies idle and is a major financial burden on the sector. The energy sector has become unsustainable, primarily due to poor planning and the failure to incorporate realistic, data-driven assumptions into the decision-making process. As a result, the energy sector has not only failed to meet current demand but also risks becoming financially insolvent if corrective measures are not taken urgently.
One of the most significant challenges contributing to inefficiencies in the power sector is the lack of adequate transmission infrastructure. While most of Pakistan’s energy demand is concentrated in the north, the majority of low-cost generation capacity, such as nuclear and local coal plants, is located in the south. However, the country lacks the necessary transmission lines to efficiently transfer electricity from the south to the northern regions, where demand is highest. This bottleneck, which could have been avoided through strategic planning, persists largely due to the prohibitive costs of building the required transmission networks and the political challenges associated with recovering these costs through already unaffordable tariffs.
A potential solution to this issue could lie in revisiting the current pricing structure for electricity. Instead of using a uniform tariff across the country, Pakistan could adopt a region-specific tariff system, similar to the pricing models used in other countries like the US, India, and others. In these countries, electricity tariffs vary depending on regional generation costs, with cheaper rates in areas where low-cost plants are concentrated. Implementing such a tariff system in Pakistan, particularly in the south where renewable energy and low-cost generation plants are abundant, could help optimize the use of existing resources and improve the sector’s overall efficiency. However, political and economic complexities have consistently obstructed such reforms, leaving the system inefficient and inequitable.
This issue of uniform pricing extends beyond the power sector into the petroleum industry, where prices for petroleum products are the same nationwide despite varying costs across regions. The Inland Freight Equalization Margin (IFEM) has been grossly misused for decades, plundering the national exchequer and contributing to inefficiencies in the pricing structure. Similarly, the gas sector faces similar challenges, where political considerations often dictate pricing decisions rather than efficiency and market forces.
In the gas sector, indigenous gas production is deliberately reduced to make room for expensive imported re-gasified liquefied natural gas (RLNG). This policy not only increases the cost of gas for domestic consumers but also exacerbates the energy crisis, as gas companies struggle to recover their costs. Forced load-shedding during peak winter months, caused by the inability of gas companies to recover full costs, highlights the unsustainable nature of the current energy pricing structure.
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Furthermore, utility companies in both the power and gas sectors do not operate on a commercial basis. They lack the incentives necessary to increase sales and improve recovery rates. The regulators assume a 100 percent recovery rate, which is unrealistic given the operating environment. When distribution companies (Discos) fail to recover costs, the shortfall is added to the growing circular debt, which is ultimately passed on to consumers. The one exception is K-Electric (KE), the only privatized entity in the sector, where private shareholders absorb the costs of inefficiency. This disparity further hampers the corporatization and privatization of other state-run utilities, as inefficient public-sector entities continue to drain resources without any accountability.
The energy sector cannot sustain itself if efficient companies are forced to subsidize inefficient ones. The current system of administered pricing, combined with a lack of accountability and responsibility, has created a vicious cycle that stifles investment, limits efficiency, and perpetuates the sector’s dysfunction. The government must take decisive action to ensure that commercial entities in the energy sector are supported with sound policies and incentives to improve efficiency and attract investment.
The failure to implement meaningful reforms in the energy sector is pushing Pakistan further into economic distress. The persistent reliance on crutches such as subsidies and politically motivated pricing will only continue to deplete the country’s financial resources. Without addressing the deep-rooted issues of poor planning, mismanagement, and lack of accountability, Pakistan’s energy sector will remain in a state of dysfunction, further hindering the country’s economic growth and development.
In conclusion, the energy crisis in Pakistan requires urgent corrective action. The government must shift away from political-driven decisions and implement data-driven reforms that focus on sustainability, efficiency, and regional energy planning. The energy sector cannot continue to rely on short-term fixes; it requires a comprehensive strategy that includes both infrastructural development and regulatory reform. Only then can Pakistan hope to resolve its energy crisis and ensure a more stable and sustainable future.
