Global pressure on Pakistan’s energy landscape

At a time when global energy markets are under stress because of tensions involving Iran and the wider Gulf, Pakistan finds itself in a precarious position. LNG imports — once treated as a reliable balancing tool — are now uncertain, constrained and increasingly expensive. But while policymakers are quick to blame external shocks, the uncomfortable truth is that the crisis was already built into the system. The current disruption did not create the problem. It merely exposed it. For years, Pakistan’s energy policy has been shaped by fragmented decisions rather than coherent strategy. Instead of aligning domestic resources, imported fuels and infrastructure into a rational system, policymakers built a patchwork of contradictions. The result is an energy framework that does not optimise cost, does not reward efficiency and does not perform well under stress. Consider the most basic principle of any sane energy system: use the cheapest available resource first. Pakistan routinely violates this principle. RLNG-based power plants such as Bhikki, Balloki and Haveli Bahadur Shah generate electricity at costs far above cheaper alternatives available within the system. These plants were designed as efficient combined-cycle units, and technically they are. But efficiency in isolation means little. In the context of Pakistan’s actual energy mix, they have become symbols of distorted dispatch and poor planning. Why? Because cheaper alternatives exist. Wind power is cheaper. Local Thar coal is cheaper. Imported coal, in many cases, is also cheaper. Hydropower is cheaper still. Yet despite this obvious cost hierarchy, the system has repeatedly dispatched RLNG-based generation ahead of lower-cost options. That is not economics. It is inertia masquerading as policy. The reasons are well known. LNG contracts create pressure to utilise imported volumes. Fuel allocation systems are rigid. Transmission bottlenecks limit access to cheaper southern generation. And above all, the system lacks the discipline to enforce merit-order dispatch. The consequence is straightforward: Pakistan is producing expensive electricity while cheaper capacity sits idle. Nowhere is this more evident than in the underutilisation of coal. Both local and imported coal plants have often operated below potential, not because they are inefficient, but because the system cannot — or will not — prioritise them correctly. Transmission bottlenecks, especially between the south and the main northern load centres, prevent cheaper generation from reaching demand where it is needed. As a result, the system defaults to more expensive alternatives and then complains about the cost. Wind power suffers a similar fate. Despite being among the cheapest sources of electricity in the country, it is frequently curtailed because of poor forecasting, grid mismanagement and the inability of the system to absorb what it should have planned for in the first place. In a country where consumers still face high tariffs and periodic load-shedding, curtailing cheap renewable power is not merely wasteful. It is absurd. Then there is gas. Pakistan has, at different times, curtailed indigenous gas production while continuing to import LNG at much higher cost. This inversion of logic has placed a heavy burden on foreign exchange, reduced the role of domestic supply and created long-term risks for local reservoirs. At one point, domestic gas fields were reportedly being shut in to the tune of hundreds of mmcfd even while imported LNG was being injected into the system. That is the kind of policy choice that would be comic if it were not so expensive. Fuel oil adds yet another layer to the confusion. Heavy taxation has rendered fuel oil-based generation uncompetitive at home, encouraging exports at distressed prices. Yet when LNG supply tightens or imported gas becomes unaffordable, fuel oil suddenly reappears as a fallback option. In other words, the system first undermines its own flexibility and then panics when it needs it. One could call it planning, but that would be generous. All this is happening in a system that supposedly has surplus installed capacity. This is perhaps the clearest sign that the real issue is not availability of power, but the failure to deliver it efficiently. Transmission constraints, distribution losses, theft, poor recovery, and circular debt all play their role. But at its core, this is a coordination failure. The country has resources. It simply does not use them sensibly. LNG, in this context, must be understood correctly. It is not the villain of the story. It remains an important part of Pakistan’s energy mix — a relatively cleaner and more flexible fuel that can help balance seasonal demand and provide support when needed. The problem is not LNG itself. The problem is the way it has been integrated into the system. Instead of being used strategically, it has been treated as a default option. Instead of complementing domestic resources, it has often displaced them. But change does not mean dramatic gestures, contract theatrics or impulsive reversals. Pakistan must remain credible in international markets. The objective should be to improve flexibility gradually: better alignment of supply with demand, more responsive scheduling, more rational pricing and smarter use of LNG within a broader least-cost energy framework. Yet while the state has been tripping over its own bad decisions, something remarkable has happened outside the formal policy structure. Households and businesses have begun to solve part of the problem themselves. Across Pakistan, rooftop solar has expanded rapidly, not because the government led the transition, but because consumers could no longer trust the grid. Faced with rising tariffs, unreliable supply and endless policy confusion, households and firms have invested their own capital in self-generation. That shift matters — not only for private savings, but for the national energy balance. On-grid solar reduces daytime demand on the electricity system, eases feeder loading, lowers technical losses and displaces imported fuel-based generation. Off-grid and hybrid solar go further, allowing households and firms to reduce or partially exit dependence on a failing supply system. In doing so, they create resilience from the bottom up. This is especially important in the current geopolitical context. If energy flows through the Gulf are disrupted or LNG prices surge again because of instability involving Iran, Pakistan’s exposure to imported fuel becomes a major macroeconomic risk. Every unit of electricity generated domestically through rooftop solar is a unit that does not depend on volatile international fuel markets. Put differently, distributed solar is quietly doing what energy policy should have done long ago: reducing the country’s vulnerability to imported shocks. And yet, in classic fashion, the state has chosen this moment to undermine one of the few things that is working. The reversal of net metering is a prime example. Instead of encouraging households to continue investing in rooftop systems, policymakers have weakened the economics of new installations by reducing the value of electricity exported to the grid. The justification is the usual one: cross-subsidies, pressure on distribution companies, and the need to protect the financial viability of the system. There is some truth in the claim that tariff design needs reform. But the real problem lies not with rooftop solar, but with the electricity pricing structure itself — a structure weighed down by inefficiencies, theft, legacy costs and administrative distortions. Penalising solar users because the rest of the system is broken is like blaming lifeboats for the design of the ship. By discouraging rooftop solar, the government is slowing the adoption of a technology that reduces demand for expensive imported fuel, lowers system pressure, and improves consumer resilience. It is undermining one of the few market-led adjustments taking place in the power sector. At a time when imported energy is becoming more uncertain and more expensive, this is not just bad regulation. It is economic self-harm. The deeper problem, however, is institutional. Pakistan’s energy sector is still run largely as an administrative system when it should increasingly operate as a market. Prices are distorted, procurement is politicised, dispatch is influenced by contractual rigidities, and distribution companies are rarely held to commercial standards. This is not how efficient energy systems function. It is how costs are hidden until they explode. The distribution side is a particularly glaring example. Distribution companies that cannot control losses, recover bills, maintain infrastructure or provide reliable service should not remain permanent wards of the state. Public ownership without accountability has produced exactly what one would expect: inefficiency protected at consumer expense. If a Disco cannot bill, collect, maintain and serve, then keeping it under state control is not public service. It is organised tolerance of failure. Privatisation must therefore return to the centre of the reform debate — not as ideology, but as practical necessity. Where outright sale is politically difficult, private-sector management under strict performance contracts should be introduced, with hard targets for recovery, loss reduction, service quality and investment. The objective is not to change the signboard outside the office. The objective is to impose discipline where none currently exists. More fundamentally, Pakistan must begin developing real energy markets rather than preserving administrative illusions. Open access, transparent wheeling, competitive bilateral contracting, clear network charges and eventual supplier choice are essential if the sector is to discover real prices and allocate resources efficiently. The goal should be to move away from a system where bureaucrats decide who generates, who pays and who absorbs the losses, to one where market signals reward efficiency and expose waste. In that regard, the very recent amendments to the CTBCM-related consumer eligibility rules, which now allow bulk consumers to split their energy and capacity requirements between the supplier of last resort and competitive suppliers, are a laudable step in the right direction. Allowing this kind of hybrid consumption gives large users a practical bridge into the market instead of forcing an all-or-nothing jump. But one sensible amendment does not yet create a workable energy market. Pakistan still needs transparent wheeling and network charges, credible congestion management, enforceable bilateral contracts, genuinely non-discriminatory open access, supplier discipline, and distribution reform strong enough to prevent administrative discretion from suffocating competition before it begins. Without that shift, every technical reform will remain hostage to the same institutional failures. Merit-order dispatch will be compromised by vested interests. Tariff reform will be blunted by hidden subsidies. Investment decisions will continue to be shaped by administrative convenience rather than economic logic. Pakistan does not need a smarter way to administer failure. It needs the courage to replace administrative control with competition, accountability and real commercial responsibility. The deeper problem is that Pakistan’s energy system still treats consumers as passive captive buyers rather than active economic agents. When consumers respond rationally to distorted prices by investing in solar, the system sees a threat. It should see a solution. The way forward is neither complicated nor revolutionary. First, enforce merit-order dispatch. This is non-negotiable. The cheapest available power must be used first, regardless of fuel type, bureaucratic preference or contractual laziness. Second, prioritise indigenous gas. Domestic resources should form the backbone of the system. Imports should fill gaps, not define the structure. Third, stop curtailing renewables. Wind and solar are not luxuries; they are economic necessities. Forecasting must improve, grid management must become competent, and curtailment should be treated as a system failure, not routine practice. Fourth, invest seriously in transmission. Without the ability to move low-cost electricity efficiently across regions, no generation strategy will succeed. Pakistan cannot keep building generation assets only to strand them behind weak wires. Fifth, rationalise tariffs. Blended pricing obscures reality, undermines efficiency and confuses demand. Network costs, capacity charges and energy costs should be transparently separated so that consumers and investors can respond to real signals. Sixth, stop punishing distributed solar. If the concern is cost recovery, redesign tariffs honestly. If the concern is evening peaks, encourage storage. But do not sabotage the one part of the energy transition that consumers are financing themselves. Seventh, reform distribution through privatisation or private management and begin building genuine energy markets. Without commercial discipline on the wires side and competitive pressure across the system, inefficiency will continue to be socialised and reform will continue to die in PowerPoint. Pakistan does not need to reinvent its energy system. It needs to make it work. Copyright Business Recorder, 2026

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