Pakistan faces a myriad of economic challenges, including a current account deficit, dwindling foreign reserves, and inflation. However, one of the most pressing issues confronting the nation is the crisis in the power sector.
Recent protests, road blockades, and demands for reduced electricity bills and petrol prices underscore the gravity of the situation. While some resorted to burning their electricity bills in frustration, the government eventually quelled the unrest without addressing the root issues. It’s essential to recognize that the energy crisis extends beyond Pakistan, with global implications exacerbated by events like COVID-19 and the Russia-Ukraine war.
The genesis of Pakistan’s energy crisis can be traced back to the 1990s. Prior to that decade, the construction of the Mangla and Tarbela dams provided a significant hydroelectric energy source, effectively averting an energy crisis. However, rapid economic growth, urbanization, and population expansion in the 1980s placed immense strain on the energy sector as demand surged without commensurate supply and infrastructure improvements. Consequently, the deterioration of the energy sector began during this period, leading to persistent price hikes. According to recent data from the International Energy Agency (IEA), Pakistan’s energy demand continues to escalate, with a forecasted increase from 16,201 GWh in June 2019–20 to 20,147 GWh in the same month of 2024–25.
One of the primary contributors to Pakistan’s energy vulnerability is its overreliance on non-renewable energy sources. These resources, such as oil and natural gas, are depleting at an alarming rate, with oil reserves expected to be exhausted by 2025 and natural gas by 2030. Shifting focus towards ongoing green energy projects could significantly reduce dependence on non-renewable sources.
The energy sector’s mismanagement is a critical issue that plagues Pakistan. A glaring example occurred on January 23, 2023, when a grid failure plunged the entire country into darkness. This mismanagement is also reflected in Asia’s highest technical and commercial losses (29.7% in line losses) and widespread electricity theft, especially in urban centers like Karachi. In rural areas, the Konda system (hooking) is prevalent. Furthermore, the government failed to renegotiate agreements with Independent Power Producers (IPPs) dating back to 1991, even though the typical agreement tenure is ten years. Addressing line losses, curbing theft, and renegotiating IPP agreements hinge on effective and vigilant governance of the energy sector.
Insufficient revenue generation compounds the sector’s woes, leading to a circular debt problem. This debt arises from the disparity between revenue and expenditure within the energy sector. Due to inadequate revenue, the government cannot meet its obligations to local energy companies, which, in turn, delays payments to foreign energy suppliers. This vicious cycle perpetuates the circular debt crisis, estimated at Rs 2.46 trillion in the power sector and Rs 1.5 trillion in the gas sector, totaling nearly Rs 4 trillion. Depleting national reserves and poor revenue generation exacerbate this issue.
Additionally, the energy sector’s heavy reliance on imported fossil fuels, such as oil and gas, results in costly energy production, making Pakistan one of South Asia’s most expensive electricity-generating countries. These imports are purchased in dollars, and the rupee’s significant devaluation over the past few years has further inflated costs. In 2018, the exchange rate was PKR 98 per dollar; today, it stands at approximately PKR 300 per dollar. Consequently, Pakistan incurs an extra cost of 202 rupees for each dollar spent on imported oil. Furthermore, many IPP agreements, including those from 1991, 1994, 2002, and 2011, are oil-based, obliging the government to pay the principal amount even if no electricity is purchased. Shifting policies to prevent rapid rupee devaluation, increasing reliance on renewable energy, completing ongoing renewable projects, and renegotiating IPP agreements to pay in local currency are essential steps to address these challenges.
Despite Pakistan’s abundant renewable energy sources, inefficient utilization has resulted in an energy shortage. Only a small fraction of the country’s total capacity comes from wind and solar energy, accounting for just 2% of total energy generation. To meet current electricity demand, Pakistan would need to allocate a mere 0.071% of its land for solar photovoltaic energy generation. The underutilization of renewables exacerbates the energy supply-demand gap.
Solutions to Pakistan’s energy crisis are within reach, but effective policy implementation is the key challenge. Granting greater autonomy to the National Electric Power Regulatory Authority (NEPRA) in decision-making and investing in incomplete renewable energy projects are critical steps. While energy problems persist, successfully implementing these measures offers hope of averting an impending energy crisis.