Global debate is naturally fuelled in the immediate aftermath of supply disruptions of a critical product (natural disasters, wars and/or imposition of sanctions/tariffs) on how to forestall the possibility of a recurrence even as governments release their reserves. But in the longer term, alternatives may be more expensive given the existing infrastructure that may lead to restoration of demand once supply is reinstated.
An example would be the October 1973 embargo by oil producing Arab states against countries supporting Israel in the Yom Kippur war, yet when the embargo was lifted in March 1974, global demand for oil was quickly restored as it remained economically the most viable product. Today with technological advances there are more alternatives, including nuclear and renewables, and yet there is a global acknowledgement that demand will be restored once supply is.
The oil supply disruptions due to the ongoing Middle East conflict led the Managing Director of the International Monetary Fund (IMF) to state the obvious: that it caused “considerable hardship around the globe;” she then rhetorically asked “what hit us” and proceeded to answer her own query: “a supply shock that is large, global, and asymmetric: it is large because the world’s daily oil flow cut by some 13 percent, and its LNG flow by some 20 percent. It is global because all of us are now paying more for energy and with supply chains disrupted across the world. And it is asymmetric because its impact depends on proximity to the conflict, whether you are an energy exporter or an importer and your policy space.”
Pakistan as a major oil importing country has suffered considerably due to oil supply disruptions. The International Energy Agency (IEA) citing 2023 data notes that most of Pakistan’s primary energy supply comes from oil and natural gas, hydropower is our main renewable source of energy though wind and solar shares are slowly growing. The IEA added what is rarely highlighted in this country notably that more than 40 million people remain without access to electricity and half the population lacks access to clean cooking facilities – people reliant on biofuels (derived from biomass – plant, algae material or animal or other waste).
The IEA further noted that 48 percent of total energy consumption is residential (and suggested replacing fossil fuel boilers with efficient electric heat pumps that would reduce carbon dioxide emissions – a salutary objective given that Pakistan is highly susceptible to climate issues), 23 percent by industry with natural gas accounting for 30 percent of industry’s total consumption and coal and products 27 percent.
In Pakistan from 2020 to April 2026 electricity rates increased from 16 to 17 rupees per kilowatt-hour to 33.38 rupees per kilowatt-hour. The question is what accounts for this massive rise in just under six years. The reason is two-fold. First, Pakistan’s electricity sector has been the subject of serious multilateral concern for decades; and disturbingly remains so to this day indicated by donor conditions, including in the ongoing IMF Extended Fund Facility (EFF) programme. The thrust of these conditions has been two-fold. First, full cost recovery that has been tackled by successive administrations through raising per unit tariffs rather than undertaking structural reforms, inclusive of dealing with sectoral inefficiencies (reducing transmission and distribution losses). Theft, however, has been dealt with by switching off the connection to that area which, government as well as private sector, argue is tantamount to human rights abuse.
And second, borrowing from domestic commercial banks, which are over-exposed to the power sector in any case, to retire the circular debt and passing on the associated interest to the consumers. It is relevant to note that in 2013 Ishaq Dar, as the finance minister, borrowed a little under 500 billion rupees from commercial banks to retire the circular debt, which was estimated at 2.5 trillion rupees in 2024. The incumbent government borrowed 1.25 trillion rupees last year for the same purpose and while the jury is out on whether the circular debt will resurface this time around.
Sector experts cite four sectoral bottlenecks in Pakistan’s energy sector. First, capacity to shift from relying on traditional imported energy inputs is a serious challenge sourced to the contracts signed with the Independent Power Producers (IPPs) under the 2002 and 2012 policy notably that capacity charges would be payable in dollars if the government did not purchase the entire amount due to lower demand – a factor that makes a shift to other sources, including renewables, economically unviable. These contracts flaws were repeated in the 2015 energy sector projects signed under the China Pakistan Economic Corridor umbrella.
Second flawed policies premised on, at best, inaccurate assessment and, at worst, over-stating the growth rate in Gross Domestic Product to project demand. The 2016 contract to import LNG from Qatar projected a growth rate that never materialised which, in turn, accounts for the country’s economic team leaders considering the declaration of force majeure by Qatar a blessing in disguise. Be that as it may, the cessation of the arrival of two of the six RLNG containers per month under the contract that Pakistan needed to meet domestic needs has led to shortages in the market.
Third, knee-jerk reactions followed by flawed decisions to resolving the issues of the sector for example setting up a coal plant away from the source of coal, which has led to high transport costs as well as health issues, rental power projects by the PPP-led government with the then finance minister Shaukat Tarin insisting on third-party audit, which gave the contracts a resounding thumbs down and more recently incentivising solar panels for households that reduced the demand for energy from the grid, thereby raising capacity charges.
And finally, Pakistan’s domestic gas and oil production has been shrinking over time and therefore more and more reliance has to be placed on imported fuel, which requires healthy foreign exchange reserves. At present the reserves may appear healthy at 17.1 billion-dollars end May 2026, but these are almost entirely debt based.
To conclude, the government needs to think out of the box by abandoning the policy of tariff equalization that has implied inefficient distribution companies are subsidized by the government at the taxpayers’ expense and to revisit the insistence on privatization as the best solution, given that K-Electric was privatized in 2005 but still relies on not only supply from the national grid (which though allows for lower capacity charges but still indicates its failure to more efficiently generate and provide electricity to its consumers) as well massive annual budgeted subsidy (135 billion rupees in the outgoing year).
Copyright Business Recorder, 2026
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