Pakistan is facing a deepening energy crisis and mounting circular debt due to flawed policy decisions, expensive reliance on imported fuel, and weak regulatory oversight, rather than solely because of the IMF. The country’s energy sector issues escalated notably after the Nawaz Sharif-led government took office in 2013 and swiftly cleared around Rs 480 billion in circular debt. This move coincided with the initiation of the China-Pakistan Economic Corridor as part of China’s Belt and Road Initiative.
The analysis highlighted that Chinese officials had advised Pakistan to prioritize renewable energy projects like solar, wind, and hydropower. However, Pakistan opted for imported liquefied natural gas (LNG) and coal-fired power plants that depend on costly imported fuel priced in US dollars. The report also noted that significant hydropower projects, capable of generating over 15,000 MW of electricity, were not given priority and were not fully integrated into the CPEC energy plans.
Moreover, Pakistan missed opportunities to upgrade old oil and gas-fired power plants in cities such as Faisalabad, Karachi, and Muzaffargarh to enhance efficiency at a lower cost. A comparison was drawn with India, which retrofitted 17,500 MW of thermal power capacity to provide cheaper electricity. The analysis criticized Pakistan’s handling of Thar coal reserves, mentioning that proposed mine-mouth coal power projects in Thar by China’s Shenhua Group, aimed at generating electricity at lower tariffs, faced setbacks due to tariff disputes with Pakistan’s power regulator.
The report highlighted that Pakistan currently pays between 12 and 17 US cents per unit for electricity, considerably higher than the anticipated cost of power from Thar coal projects. It also accused the regulator of approving inflated tariffs and construction costs for subsequent Thar coal projects.
