Mixed fortunes for energy sector

ISLAMABAD:

The year 2025 brought both pain and gain in the energy sector during which the Shehbaz Sharif-led government made efforts to address the emerging and longstanding challenges.

A major problem plaguing the energy sector for decades has been the chronic circular debt, which has impacted the entire chain. The current government inked a Rs1.225 trillion financing agreement with a consortium of 18 banks to curtail the circular debt in the power sector.

Though the finance minister called it the largest restructuring deal in Pakistan's history, the settlement was not a new and unique mechanism to tackle the mounting debt. It was a loan agreement struck to reduce the debt pile.

This means the government borrowed more money from banks to pay its old debt, which would be recovered from electricity consumers. It can be described as an old wine in a new bottle.

The previous government too had followed the same strategy to clear debt by acquiring funds from banks. However, it is a short-term move and the long-term solution is to address the issues afflicting the power sector such as performance inefficiency and rampant theft. Experts say the best solution could be the privatisation of electricity distribution companies (DISCOs).

On the other hand, the government took a good decision to introduce wheeling charges. Under this mechanism, private-sector power producers can clinch a direct deal with clients rather than DISCOs for electricity sale.

The government has announced that it will not buy further electricity and the power sector will have to cope with the situation through wheeling charges to be determined by the National Electric Power Regulatory Authority. It will open the electricity market for consumers.

The gas market has already been opened to some extent by enhancing the allocation of newly discovered gas from 10% to 35% to private parties. This decision has been welcomed by the private sector and exploration companies as a good initiative, which will reduce circular debt and enhance cash flow for oil and gas exploration firms.

In another initiative, the government introduced incremental electricity supply to the agriculture and industrial sectors at a lower tariff to encourage them to increase power consumption. This will help rescue consumers from capacity payments. It will also result in running power plants at full capacity by pumping more liquefied natural gas (LNG).

LNG deal with Qatar

In late 2025, Pakistan inked a deal with Qatar for diverting 24 LNG cargoes to other buyers due to a glut in the gas sector in the wake of low consumer demand. The Petroleum Division claimed that the country would save around Rs1,000 billion under the deal.

But the real challenge still persists. Pakistan needs continuous gas supply as demand surges in winter and in summer too, domestic consumers requiring gas for cooking face outages. Even captive power producers have been denied gas supply. The gas sector needs reforms including the introduction of a weighted average cost to blend the imported LNG with locally produced gas.

During the previous Pakistan Tehreek-e-Insaf (PTI) tenure, parliament had passed a bill to enforce the weighted average cost of gas, but Sindh opposed the decision and it ended in a legal dispute.

For decades, two public gas utilities have been operating in Pakistan with a wide network. The World Bank has pushed the government to unbundle the utilities to bring efficiency to the system.

In 2025, the government allowed the provision of LNG connections to consumers, which had been banned for the last several years. This is termed a good attempt to push up LNG demand.

Also, bids were opened for the grant of offshore exploration licences. For the 40 offshore fields offered, 32 licences were awarded to oil and gas exploration companies.

In the past, several exploration firms had left Pakistan due to bureaucratic hurdles and inconsistent policies. Now, the country has been able to attract a big Turkish firm to invest in offshore drilling. The Turkish company has entered into a joint venture with Pakistani oil and gas companies like OGDC, Pakistan Petroleum and Mari Energies.

In the mineral sector, especially the Reko Diq copper and gold mining project, Pakistan has arranged $3.5 billion financing. Local companies along with a Canadian firm have already started work on exploring copper and gold before achieving financial close.