HISTORICALLY, the country`s power sector landscape has been marked by acute power shortages followed by high transmission and distribution (T&D) losses. To address the supply shortages, the government of Pakistan in the 1990s allowed private investment in the generation sector, as it couldn`t singlehandedly meet the investment requirements.

Given the political instability in the country and poor macroeconomic indicators, the government had to agree on favourable terms with the private sector. The 1994 Power Policy paved the way for the deployment of private power generation in the country, but it is still criticised; much of it is without context.Supply shortages returned to Pakistan in 2007, and these became severe in the following years. Following 2015, the Pakistani government, under the ChinaPakistan Economic Corridor, installed significant generation capacity, anticipating economic growth that would subsequently drive electricity demand. The electricity demand did not grow as initially anticipated, primarily due to ongoing political instability, a persistent issue in the country, and the impact of the pandemic.

In recent years, the electricity demand has declined for a range of reasons, including a spike in power prices and the widespread adoption of photovoltaic (PV) solar. In FY24, the electricity sales to the national grid, including theKE, observed a decline of three per cent (excluding KE`s own generation and purchases from independent power producers) compared to FY23.

Unit sales to the National Grid and the KE dropped from 124,628 GWh in FY22 to 112,902 GWh in FY23. In FY24, the unit sales dropped even further to 109,707 GWh.

According to the Pakistan Economic Survey 2024-25, electricity consumption in Pakistan stood at 80,111 GWh during July to March, marking a 3.6pc decline compared to 83,109 GWh in the same period of FY24.

Pakistan is currently under the International Monetary Fund programme, which requires the federal government to reduce subsidies and improve recoveries. In the absence of fiscal space to provide subsidies and a robust plan to improve recoveries from the distribution sector, specifically the state-owned utilities, the government moved to spike the power prices (equivalent to punishing good-paying consumers).

On the other hand, the power sector has long been exploited by successive governments as a financial crutch to offset governance shortcomings, primarily through the imposition of supplementary charges onelectricity bills. These charges comprising taxes, duties, fees, and surcharges substantially inflate the total amount consumers must pay.

As a result, high electricity costs have contributed to a decline in electricity sales, driving consumers toward rooftop solar and further underutilising the country`s generation capacity. This underuse, in turn, has intensified the upward pressure on electricity prices.

As far as the adoption of rooftop PV is concerned, it can be attributed to a global supply glut. The surplus supply of solar panels radically reduced prices to the extent that, despite the massive devaluation of the Pakistani rupee, deploying PVsolar made sense to a consumer troubled by high grid prices.

As of April 2025, Pakistan had installed 2.8GW of solar net metering capacity during the ongoing fiscal year, bringing the cumulative total to 5.3 GW. This was expected to reach 6.3GW by the end of FY25. Out of the 5.3 GW installed by April, approximately 4.7 GW was in distribution companies (Disco)served areas, while 0.55 GW was within K-Electric`s network. For comparison, approximately 1.1 GW of solar net metering capacity was added in FY24, whereas only 0.58 GW was installed in FY23.

According to the State of the Industry Report 2024, the aggregate transmission and distribution (T&D) losses of all Discos increased significantly from 16.84pc in FY22 to 18.31pc in FY 2023. This is particularly alarming given that the National Electric Power Regulatory Authority (Nepra) had set a target of 11.77pc, meaning actual losses exceeded the benchmark by 6.54pc.

This deviation contributed approximately Rs276 billion to the circular debt.

Pakistan operates under a uniform national tariff, which means that the financial losses incurred in high-theft regions,particularly in parts of Khyber Pakhtunkhwa, Baluchistan, and Sindh, are effectively cross-subsidised by good-paying consumers in Punjab and Karachi.

Over the decades, the state expanded the electricity grid into areas where its administrative control was either weak or non-existent, often driven by political considerations rather than economic viability.

As a result, current efforts to improve recoveries, without credible enforcement and political consensus, are frequently met with resistance, and in some cases, outright coercion from regions with persistently high theft and poor payment discipline.

This is not merely another crisis, as it carries profound national security implica-tions for the Federation of Pakistan and demands urgent, sustained action. In response, the government has initiated major reforms in the power sector. These include efforts to manage and eliminate circular debt, enhance recoveries from Discos, and consider revising the solar buyback rate to curtail regressive cost-shifting from affluent to low-income households.

Additional measures involve the sale of defunct generation assets with significant capacity costs, imposing a levy on captive power generation, promoting the electrification of the transport sector to boost demand, and rolling out smart meters, particularly in the service areas of Islamabad Electric Supply Company and Lahore Electric Supply Company.However, these reforms unfold against a backdrop of persistent political instability that has long plagued Pakistan, consistently undermining key macroeconomic indicators and creating a high-risk environment for investors in the power sector. As a result, investors demand a premium to offset the uncertainties caused by inflation, currency devaluation, chronic fiscal deficits, and rising public debt.

This premium inflates the overall cost of power projects, ultimately driving up electricity prices for consumers. Consequently, the financial strain on both power companies and the broader economy deepens, creating a vicious cycle of inefficiency, rising costs, and eroded investor confidence.

The bottom line is that, regardless of the measures the government takes, the key to resolving the challenges in the power sector lies in achieving and maintaining macroeconomic stability, an objective that is inseparably linked to political stability within the country.

The writer is an energy sector professional based in Islamabad. X: @beingkamil, email: beingkamil@yahoo.com