Pakistan's worsening energy crisis and its mounting circular debt burden are primarily the product of years of flawed policy choices, dependence on expensive imported fuel, and weak regulatory oversight — not solely the International Monetary Fund (IMF), according to a detailed analysis of the country's power sector cited by The Tribune Express.

How the Crisis Took Root

The analysis traces a critical turning point to 2013, when the Nawaz Sharif-led government returned to power and cleared nearly Rs 480 billion in circular debt within weeks of taking office. This move coincided with the launch of the China-Pakistan Economic Corridor (CPEC) under China's Belt and Road Initiative, which opened a window for major energy investments that, according to the report, was not fully utilised.

Chinese officials had reportedly advised Pakistan to prioritise renewable energy — solar, wind, and hydropower. Instead, the country pivoted toward imported liquefied natural gas (LNG)-based and coal-fired power plants, both heavily dependent on fuel priced in US dollars, locking in long-term foreign-currency exposure at a time of persistent rupee weakness.

Missed Opportunities in Hydropower and Retrofitting

The report argues that major hydropower projects — including the Diamer-Bhasha Dam, Dasu, and Bunji hydropower schemes — were sidelined in terms of priority and never fully integrated into the CPEC energy portfolio. Together, these projects held the potential to generate more than 15,000 MW of electricity at comparatively lower cost.

Pakistan also reportedly missed an opportunity to retrofit ageing oil and gas-fired power plants in cities including Faisalabad, Karachi, and Muzaffargarh, which could have improved efficiency at significantly lower cost. The analysis contrasts this inaction with neighbouring India's retrofitting of 17,500 MW of thermal power capacity, a move that delivered cheaper electricity to consumers.

The Thar Coal Dispute

The analysis also scrutinises the handling of Pakistan's Thar coal reserves. China's Shenhua Group had reportedly proposed developing mine-mouth coal power projects in Thar capable of generating electricity at significantly lower tariffs. The project, however, reportedly collapsed due to tariff disputes with Pakistan's power regulator, the National Electric Power Regulatory Authority (NEPRA).

The report further accused NEPRA of approving inflated tariffs and construction costs for subsequent Thar coal projects. Pakistan now pays between 12 and 17 US cents per unit for electricity — significantly higher than the projected cost that Thar coal projects would have delivered, according to the analysis.

Regulatory Failures at the Centre

Critics cited in the analysis argue that weak regulatory oversight compounded every misstep — from fuel procurement to tariff-setting. The cumulative effect is a power sector that is expensive to run, difficult to reform, and deeply indebted. This comes amid Pakistan's ongoing engagement with the IMF on fiscal consolidation, though the report is emphatic that multilateral pressure alone does not explain the depth of the crisis.

With circular debt continuing to strain Pakistan's fiscal position, the trajectory of its energy sector will depend on whether policymakers can break from the patterns that the analysis says have defined the past decade.