he power sector of the national economy is currently plagued with several challenges, ranging from chronic mismanagement and financial instability to policy uncertainty and technical inefficiencies. There is an urgent need for a robust modern energy infrastructure. However, adequate investment in the sector remains elusive.

The Indicative Generation Capacity Expansion Plan (IGCEP 2024-34) and Transmission System Expansion Plan (TSEP 2024-34) project Pakistan’s investment needs over the decade at no less than $72 billion. This investment is needed for expanding generation and grid capacity, renewable energy integration and transmission upgrades.

The Special Investment Facilitation Council is trying to attract foreign investment in the sector. However, recent interventions have undermined investor confidence.

On the generation front, the government has been renegotiating contracts with the independent power producers. This has understandably created mistrust among investors, raising fears that future agreements may also be subject to alteration and created the impression of an unreliable market for long-term energy investments.

The renegotiation has sabotaged the credibility of sovereign guarantees, which were previously considered ironclad commitments by the state.

A coalition of international lenders, including Asian Development Bank, are reported to have sent a strongly worded letter to key government ministers that bypassing lenders in amending renewable energy contracts could lead to serious consequences for the sector.

“We believe that renegotiating power purchase agreements (PPAs) in a non-consultative manner will be detrimental to the long-term development of the sector, undermining investor confidence and discouraging much-needed future private investment,” the Development Finance Institutions wrote.

Another case in point is K-Electric’s recent achievement of attracting lowest bids in Pakistan for its 640 MW renewable energy projects.

The fate of these low-cost clean energy projects now hangs in the balance as delays in approvals from the NEPRA and uncertainty of their inclusion in the IGCEP are holding back the execution of these projects.

Recognising the strategic importance of these projects, the governments of Sindh and Balochistan have appealed to the federal government for their inclusion in the IGCEP.

A transparent, investor-friendly policy framework that guarantees contract enforcement, minimises bureaucratic hurdles and ensures financial sustainability is the only way to attract long-term investment. 

The bureaucratic delay is not only hindering transition to affordable renewable energy but has also sent a strong deterrent signal to potential investors, reinforcing the perception that even the most competitive and well-structured projects remain vulnerable to regulatory inertia and policy uncertainty.

The situation is equally dire on the distribution front. The government has been trying to offload the struggling power distribution companies. A ministerial committee has recently recommended privatisation rather than transfer to provincial governments, arguing that there is little point to shifting the financial burden from one government to another.

The government of Sindh has outright refused to take loss-making Hyderabad Electric Supply Company and Sukkur Electric Power Company, citing its inability to sustain their mounting losses. This underscores the absence of a viable strategy to resolve the crisis, leaving these companies in a state of operational paralysis with no clear path forward.

Minister for Power Sardar Awais Ahmad Khan Leghari recently announced that Islamabad Electric Supply Company, Gujranwala Electric Power Company and Faisalabad Electric Supply Company were set to be privatised within the year. However, as Pakistan moves towards Competitive Trading Bilateral Contract Market, a major structural flaw threatens the success of the transition.

Under the current framework, the DISCOs are expected to become the supplier of last resort (SOLR). However, they are to be barred from competing with new market entrants in their service territories. This effectively cripples their financial viability, as new entrants will selectively serve high-recovery consumers, leaving SOLRs burdened with low recovery and high losses.

How can one expect to privatise the DISCOs if the fundamental flaw is left unaddressed so that the proposed market structure all but guarantees their financial failure?

The power sector is at a critical crossroads. Without serious structural reforms, the country will continue to struggle with chronic energy shortages, rising electricity costs and mounting investor scepticism.

A transparent, investor-friendly policy framework that guarantees contract enforcement, minimises bureaucratic hurdles and ensures financial sustainability of power sector entities is the only way to attract long-term investment.

The government must prioritise grid modernisation, ensure regulatory consistency and implement market-based reforms to restore investor confidence. Failure to act decisively will not only deepen the current crisis but also push Pakistan’s energy sector further into economic and operational collapse, making the $72 billion investment target hard to achieve.

The writer is a senior economic correspondent at The News. He tweets @Jawwadrizvi