Energy Crisis: Pakistan Wastes Trillions Amid Poor Planning and Policy Failures

ISLAMABAD: Pakistan’s longstanding energy crisis is often described as a shortage of resources. However, the country’s challenges also stem from inefficient resource utilisation, misplaced priorities, weak planning and delays in implementing essential reforms.

A recent LUMS Energy Institute event on Pakistan’s energy security highlighted the scale of the problem, noting that the country spends approximately Rs 3.5 trillion annually on energy imports. Much of this expenditure could potentially be reduced through better planning and more effective use of existing resources.

Pakistan’s winter energy demand exposes a major contradiction in the sector. The country imports around $2.7 billion worth of liquefied natural gas (LNG) over four months to meet household heating and water-heating requirements, even as a significant portion of its electricity-generation capacity remains unused.

Installed power generation capacity exceeds 36,000 megawatts (MW), yet the country’s base electricity load remained around 8,000MW between 2015 and 2023. This gap reflects the difficulty of matching generation capacity with actual demand and seasonal consumption patterns.

Consequently, Pakistan continues to import expensive fuels while making payments for electricity generation capacity that it cannot fully utilise. These costs add to capacity payments and place further pressure on the circular debt.

The failure to enforce energy-conservation building codes represents another missed opportunity. According to research presented at the LUMS event, a federal building code approved in 2023 could reduce cooling demand by up to 51 per cent. However, Punjab, Sindh and Balochistan have yet to adopt it.

Improving the energy efficiency of just one-quarter of residential buildings could reduce peak electricity demand by 3,000MW and generate annual savings of Rs 442.6 billion. These potential benefits remain unrealised because of delays in implementation.

Oil Prices: Crude Holds Steady as Trump Signals No Fresh Iran Strikes

Similar problems affect the wider power system. Transmission and distribution losses, inadequate investment in the electricity grid and governance challenges within distribution companies (DISCOs) continue to weaken the sector. Electricity generation capacity alone cannot guarantee reliable delivery to consumers.

Circular debt continues to accumulate, consumers face high tariffs, and the government remains under pressure to provide bailouts and introduce repeated tariff adjustments. Privatising DISCOs, often presented as part of the solution, also involves significant challenges.

Potential investors are likely to examine K-Electric’s experience before entering a sector affected by policy uncertainty, payment disputes and regulatory complications. Without credible governance and a predictable regulatory framework, attracting investment in these utilities will remain difficult.

Capacity payments to independent power producers (IPPs) present another major challenge. Under existing arrangements, IPPs receive payments for making electricity-generation capacity available, regardless of how much power the system actually dispatches.

Given the scale of these payments, an independent forensic audit should examine declared capacity, actual availability, utilisation levels and contractual obligations. Honouring IPP agreements does not prevent the government from scrutinising the claims behind these payments or ensuring that public funds are properly accounted for.

Pakistan has also struggled to develop indigenous energy resources, integrate renewable energy into its power system and revive domestic manufacturing of transmission and distribution equipment.

Research presented at the LUMS event identified approximately Rs 1.1 trillion in potential opportunities for local manufacturing. However, a promised indigenisation plan has yet to materialise.

The consequences extend well beyond the energy sector. Pakistani businesses and industries face some of the region’s highest energy costs, increasing production expenses and weakening export competitiveness. High energy costs also constrain industrial expansion, discourage investment and limit employment opportunities.

These challenges are not new. Seminars and policy discussions have repeatedly highlighted the weaknesses in Pakistan’s energy sector. The economic costs are well documented, and experts have proposed solutions ranging from energy conservation and improved governance to local manufacturing and renewable energy integration.

Yet implementation remains a persistent problem. Pakistan does not need another diagnosis of its energy crisis. It needs consistent policymaking, institutional accountability and the political will to translate existing recommendations into practical reforms.

The evidence has been presented once again. What remains is the responsibility to act before the cost of inaction places an even greater burden on the economy.