Pakistan needs to rethink its energy policies. The need of the hour is to reduce reliance on oil-based IPPs. Energy security is no longer a mere economic concern, it is a cornerstone of national power and strategic stability.
Kashif Rauf Niazi
At the birth of Pakistan, the state inherited not only political and territorial challenges but also a deep structural wound in the form of water insecurity and weak energy infrastructure. As Rumi wrote, “The wound is the place where the Light enters you.” This wound became the source of resilience, institutional development and national growth for Pakistan. Signing of the Indus Waters Treaty in 1960 allowed Pakistan to set up an independent water management system and thus plan and build the Tarbela Dam and Mangla Dam etc. In the 1970s and 1980s, Pakistan’s installed capacity of electricity generation grew to almost 7000-8000 MW, which is more than the country’s demand of 3500-4000 MW. The construction of hydropower and nuclear energy facilities in Karachi has greatly boosted the country’s energy sector.
However, the energy sector was structurally weak. The WAPDA was heavily relying on seasonal hydropower while the lack of proper planning, outdated infrastructure, and increasing transmission losses were the factors affecting the efficiency. Electricity prices were kept artificially low due to political interference affecting revenue recovery and increasing the circular debt. Furthermore, with the potential of energy power in Pakistan, there was a lack of competition and institutional accountability due to WAPDA’s monopoly.
Following the Soviet-Afghan War, the new economic shift in the world and the changing strategic priorities of the United States had pushed Pakistan toward economic liberalization and privatization. In the 1994 Power Generation Policy, Independent Power Producers (IPPs) were established to encourage foreign investment in the energy sector.
Nineteen companies initially signed agreements to add around 3,500 MW to the national grid, although only fifteen became operational. The policy ensured that IPP payments would be made in USD and that IPPs were able to produce electricity using imported fossil fuels, like oil and gas. In addition, Pakistan was required to pay capacity charges on the electricity generating capacity, even if the electricity is not utilized or even delivered to the consumers successfully.
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Although privatization increased generation capacity, it fundamentally altered Pakistan’s energy structure. Presently, Pakistan has an installed electricity capacity of around 46605 MW and the actual demand is rarely seen to cross 30000 MW. However, the country still suffers from serious energy shortages, foreign exchange crisis, high foreign exchange cost and loss of investor confidence due to inefficiency, high contract prices, and limited transmission capacity. Currently, Pakistan imports more than 80 percent of its oil needs and is only self-sufficient in producing a fraction of it, making the Pakistani economy extremely sensitive to fluctuations in global oil prices.
For Pakistan, a responsible nuclear power and the world’s fifth most populous state, dependence on imported energy has become a serious strategic vulnerability. In contrast to most nuclear nations, which have at least 90 days’ supply of imports stored in Strategic Petroleum Reserves (SPR), Pakistan has no effective reserve. Therefore, any regional conflict or fluctuation in the global oil market has a direct impact on Pakistan’s economy and national security.
The recent turmoil between the United States and Iran showed the vulnerability of Pakistan, and Pakistan was among the most affected country by the war after Iran itself. The higher oil prices put pressure on inflation, on foreign exchange reserves, and forced the government to implement austerity measures. Education institutions were shifted to online classes, markets were ordered to shut down at 8 pm, and economic activity was curtailed due to fuel and fiscal pressures. These developments highlighted how dependence on imported oil, combined with the absence of strategic petroleum reserves, continues to constrain Pakistan’s economic resilience, sovereignty, and crisis-management capacity.
Hence, Pakistan needs to rethink its energy policies. The need of the hour is to reduce reliance on oil-based IPPs, boost nuclear and hydropower capacities, diversify energy imports and establish Strategic Petroleum Reserves (SPRs) to ensure the future of economic stability, strategic autonomy and international credibility. Energy security is no longer a mere economic concern, it is a cornerstone of national power and strategic stability.
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Kashif Rauf Niazi is a graduate of Political Science from the University of Peshawar. He is currently pursuing MPhil in Strategic Studies at the National Defence University (NDU), Islamabad. His academic interests include international relations, strategic affairs, and public policy.
