Pakistan’s power sector is at a pivotal moment, with challenges ranging from mismanagement to financial instability and policy uncertainty. The need for a robust energy infrastructure is urgent, yet investment remains woefully inadequate. The Indicative Generation Capacity Expansion Plan (IGCEP 2024-34) and Transmission System Expansion Plan (TSEP 2024-34) estimate that Pakistan needs at least $72 billion over the next decade to expand generation and grid capacity, integrate renewable energy, and upgrade transmission systems. However, attracting this level of investment is proving to be an uphill battle.
The Special Investment Facilitation Council is working to draw in foreign investment, but recent government interventions have shaken investor confidence. The government’s renegotiation of contracts with independent power producers (IPPs) has created an atmosphere of mistrust. Investors now fear that future agreements could be similarly altered, making the market appear unreliable for long-term energy investments. This move has also undermined the credibility of sovereign guarantees, once seen as ironclad commitments by the state.
In a stark warning, a coalition of international lenders, including the Asian Development Bank, has cautioned Pakistan that renegotiating power purchase agreements (PPAs) without consultation could have severe repercussions. In a letter to key government ministers, the Development Finance Institutions (DFIs) stated, “We believe that renegotiating PPAs in a non-consultative manner will be detrimental to the long-term development of the sector, undermining investor confidence and discouraging much-needed future private investment.”
The situation is further complicated by regulatory delays. K-Electric’s recent success in attracting low bids for its 640 MW renewable energy projects is now in jeopardy. Delays in approvals from the National Electric Power Regulatory Authority (NEPRA) and uncertainty over their inclusion in the IGCEP have stalled these projects. Despite appeals from the governments of Sindh and Balochistan, the federal government’s lack of clear policy is sending a chilling signal to potential investors.
The distribution sector is equally troubled. The government’s attempt to privatise struggling power distribution companies (DISCOs) has hit a snag. A ministerial committee has recommended privatisation over transfer to provincial governments, but the government of Sindh has refused to take on loss-making entities like the Hyderabad Electric Supply Company and Sukkur Electric Power Company. This highlights the absence of a viable strategy to resolve the crisis, leaving these companies in operational limbo.
Minister for Power Sardar Awais Ahmad Khan Leghari announced the planned privatisation of several DISCOs within the year. However, a major structural flaw in the transition to the Competitive Trading Bilateral Contract Market (CTBCM) threatens this process. Under the current framework, DISCOs are expected to become the supplier of last resort (SOLR), but they will be barred from competing with new market entrants in their service territories. This effectively dooms their financial viability, as new entrants will cherry-pick high-recovery consumers, leaving SOLRs with low recovery and high losses.
The power sector’s woes have significant implications for Pakistan’s energy markets. Chronic energy shortages, rising electricity costs, and mounting investor scepticism will continue to plague the sector without serious structural reforms. The government must prioritise grid modernisation, ensure regulatory consistency, and implement market-based reforms to restore investor confidence.
The fate of Pakistan’s energy sector hangs in the balance. A transparent, investor-friendly policy framework that guarantees contract enforcement, minimises bureaucratic hurdles, and ensures the financial sustainability of power sector entities is crucial. Failure to act decisively will not only deepen the current crisis but also push the energy sector further into economic and operational collapse, making the $72 billion investment target increasingly elusive.
For markets, this means heightened risk and uncertainty. Potential investors will demand higher risk premiums, driving up the cost of capital for energy projects. Local businesses, already grappling with high energy costs and unreliable supply, may see their competitiveness further eroded. Meanwhile, consumers will face persistent power outages and potential tariff hikes, fuelling social unrest.
Yet, amidst the gloom, there’s an opportunity. If the government can muster the
