Model Essay: Pakistan's Energy Crisis — Causes and Way Forward

The essay below is written as a candidate would submit it under exam conditions — approximately 1,400 words, with an opening introduction, six body sections and a conclusion. A short commentary at the end identifies the techniques used.

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Pakistan today possesses more installed electricity-generation capacity than at any point in its history — over 45,000 megawatts at the close of 2024 — and yet, through the summer of that same year, urban centres endured eight to twelve hours of load-shedding while rural feeders went dark for longer still. Industrial production fell, the textile sector lost orders to Bangladesh and Vietnam, and circular debt in the power chain crossed PKR 2.6 trillion. The country produces enough electrons; it cannot move them, price them, or pay for them. The energy crisis, in other words, is no longer a problem of generation. It is a problem of governance, of pricing, and of an institutional architecture that rewards the wrong behaviour at every link of the chain. This essay argues that the way forward lies not in fresh megawatts but in the unglamorous business of fixing what already exists.

The scale of the crisis is best measured by what it has cost. Independent estimates from the Pakistan Business Council place the annual GDP loss from power shortages at between 2% and 4% — a figure that, compounded over two decades, exceeds the total external debt accumulated in the same period. Industrial gas allocations have been cut every winter since 2018; SMEs have shifted to diesel generators that triple their unit cost of production; and an entire generation of young workers has either emigrated or moved into the informal economy. Beyond the macro-economic loss lies a social cost less easily quantified: hospitals running on backup, students studying by candlelight, and small farmers whose tubewells stand idle through peak irrigation hours. The crisis is not abstract. It is, daily and visibly, a tax on national life.

The structural causes of the crisis lie in three decades of misaligned investment. First, Pakistan's fuel mix remains tilted toward imported furnace oil, regasified LNG and imported coal — fuels whose dollar-denominated prices the country cannot control. Second, the transmission and distribution backbone has not kept pace with generation: NTDC losses average 2.8% and DISCO losses range from 9% in IESCO to over 30% in SEPCO and QESCO. The result is the perverse phenomenon of "grid-bottling", in which generation sits idle in the south while northern feeders are load-shed. Third, theft and unbilled consumption remain endemic in several distribution networks; the 2023 audit of DISCOs by NEPRA identified PKR 589 billion of recoverable losses, almost none of which has been pursued. These three failures — fuel, wires and bills — together explain more of the crisis than any shortage of plants.

The policy causes are newer and, for that reason, more reversible. The 2015 round of Independent Power Producer contracts locked the country into capacity-payment obligations indexed to imported fuels and pegged to dollar returns of 15% or more. As the rupee depreciated from 105 to 280 against the dollar between 2017 and 2024, the rupee cost of those contracts roughly tripled, even when the underlying plants were not generating power. By 2023, capacity payments alone consumed over PKR 1.3 trillion of the power-purchase price — a figure larger than the federal development budget. Compounding this, the slow indigenisation of the Thar lignite reserves — Pakistan's largest unexploited energy asset — has left the country dependent on imported coal even for plants designed with Thar in mind. The 2018 China-Pakistan Economic Corridor energy projects, while filling the immediate capacity gap, added to the import-fuel dependence rather than reducing it.

Comparative experience suggests that the way out is institutional rather than physical. Turkey, faced with a similar import-fuel dependence in 2008, used a renewable feed-in tariff and a deliberate currency-hedging policy to expand wind and solar from 1% to over 18% of generation in fifteen years. India's UDAY scheme of 2015 took the politically harder route of confronting distribution-company losses head-on, requiring state governments to take 75% of DISCO debt onto their own balance sheets in exchange for tariff and metering reforms; the result, by 2023, was a halving of aggregate DISCO losses in seven major states. Vietnam, in the same period, used a competitive electricity market and direct-power-purchase agreements to attract over $20 billion of renewable investment. None of these countries was richer than Pakistan in 2015. Each chose institutional reform over fresh generation.

The way forward for Pakistan must therefore proceed on four parallel tracks. The first is DISCO reform: privatisation where politically feasible, performance-based concessions where it is not, and a hard ceiling on cross-subsidies until losses fall to single digits. The second is tariff rationalisation: time-of-use pricing for industrial consumers, targeted subsidies delivered through the Benazir Income Support Programme rather than through blanket tariff distortions, and a transparent monthly fuel-cost-adjustment formula. The third is fuel-mix transition: aggressive deployment of solar and wind under the Alternative and Renewable Energy Policy of 2019, accelerated retirement of imported-fuel plants whose contracts expire after 2027, and binding commitment to the long-delayed Thar Coal Block II expansion. The fourth, and most politically difficult, is demand-side efficiency: mandatory energy-efficiency standards for industrial motors and air-conditioning units, time-of-day pricing for residential consumers, and a phased shift of public transport and government fleets to electric vehicles. None of these is a slogan; each has a corresponding institution, an existing law, and a known implementation pathway.

A reform programme of this scope will not be free, nor will it be politically painless. The 2024 IMF Stand-By Arrangement has already conditioned its tranches on tariff increases and DISCO reform; those increases, in the short term, hurt the very households whose votes determine electoral outcomes. But the alternative — continued circular-debt rollover, recurrent IMF programmes, and a slow drift in which the country pays ever-larger sums for ever-less-reliable power — is worse. The Indian, Turkish and Vietnamese experiences demonstrate that the political cost of reform is paid in a single electoral cycle; the cost of non-reform is paid every year for a generation.

The crisis Pakistan calls "energy" is in truth a crisis of incentives. So long as DISCOs are shielded from competition, theft is unpriced, and capacity payments reward unbuilt megawatts, no expansion of generation will keep ahead of demand. The reforms are unglamorous — metering, tariffs, governance boards, accelerated retirement of imported-fuel plants. But the alternative is a continuing leakage of national income into a system that no one defends and few control. A country that wishes to industrialise, urbanise and educate its young cannot afford the present arrangement. The lights, in the end, will stay on only when the institutions behind them do.

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