Special Report :
Pakistan’s worsening power crisis, driven by imported liquid fuel and exorbitant capacity payments, has reached a critical point, forcing the government to adopt non-traditional and controversial methods to slash energy costs.
With surging electricity tariffs, public protests, and economic pressure mounting, the government is making drastic moves—some unprecedented—to avert further fiscal collapse.
According to a recent report by the Financial Times of UK (FT), one of the government’s most contentious steps has been enlisting Pakistan’s security services to coerce five independent power producers (IPPs) into terminating their long-term contracts prematurely.
The goal is to reduce the fiscal burden caused by capacity payments—fixed fees paid to producers regardless of electricity consumption—and ultimately save the state Rs411 billion ($1.48 billion).
While the government framed these actions as voluntary decisions in the national interest, insiders describe the process as coercive.
Executives from the energy sector reported to FT that military officials resorted to threats, warning of investigations into other business activities if companies refused to comply.
Nadeem Anjum, the former head of Pakistan’s intelligence agency, was reportedly involved in the negotiations, illustrating the military’s growing influence over economic matters.
The pressure tactics succeeded, but at a steep cost—investor confidence in the energy sector has taken a hit, and share prices for the affected companies, including Hub Power and Lalpir Power, plummeted by over 30%.
The premature termination of contracts addresses a long-standing problem: capacity payments.
These payments—structured to attract foreign investment a decade ago—now contribute to unsustainably high electricity tariffs.
With about 40,000 MW of installed capacity, much of it idle, the financial burden is passed on to consumers through rising electricity bills.
The situation has reached a point where electricity tariffs in Pakistan are among the highest in the region.
As the costs continue to escalate, industries are scaling back operations, and residential consumers are increasingly unable to afford basic energy needs, fueling public outrage and street protests.
In response to soaring bills, many affluent consumers and industries are turning to solar power, using net metering to offset costs. Since 2015, solar adoption has surged, with an additional 700 MW installed this year alone.
However, this migration to off-grid solutions is creating new challenges, notably the “Denominator Challenge”: as more paying consumers leave the grid, the burden of capacity payments is spread across fewer remaining consumers, driving tariffs even higher.
This vicious cycle disproportionately affects low-income households that cannot afford the switch to renewables, worsening social inequality.
Industries—responsible for nearly 28% of electricity consumption—are also being hit hard, with many scaling back operations or shutting down entirely due to unsustainable energy costs.
Pakistan’s energy challenges have deep roots, and China has been instrumental in helping the country address previous crises.
During the early 2010s, widespread blackouts were mitigated through energy projects financed under the China-Pakistan Economic Corridor (CPEC).
Federal Information Minister Attaullah Tarar recently lauded China’s role, calling the CPEC projects “a game-changer.”
While these projects brought temporary relief, they also locked Pakistan into debt and fossil fuel dependency.
As the second phase of CPEC progresses, Pakistan hopes to attract further Chinese investment, but this approach alone cannot solve the structural problems plaguing the energy sector.
In the mid-term, renewable energy investments—particularly in solar and wind—must increase to diversify the energy mix and reduce reliance on expensive imports.
Grid modernization and efforts to minimize transmission losses are also essential to improve efficiency and reduce costs.
Regional investors from Saudi Arabia, UAE, and Qatar have shown interest in energy projects, offering Pakistan an opportunity to fund new generation and transmission infrastructure.
Carbon trading and offset mechanisms could further support renewable investments, opening pathways to a greener economy.