Outsourced power: how aid agencies engineered Pakistan's energy bureaucracy?—II

Business Recorder

16-07-2025

Enter 2025, it was decided that the fundamentally unsustainable power sector could only be saved by putting to waste years of policies and billions of dollars of gas-related investment and infrastructure. At the behest of the IMF, the government imposed a 'grid transition levy' on gas consumption for captive power generation to force industries to the national grid.
An Ordinance was rushed to meet the January 31st structural benchmark deadline, and the calculation methodology passed into law yielded a negative levy—because in fact gas-fired captive generation is more expensive than the grid at RLNG prices.
A Rs. 791/MMBtu levy was then made up purely to show compliance to the IMF, while captive power plants in the fertilizer and other favoured sectors are being supplied with gas through a private monopoly under Third Party Access without any levy.
Outsourced power: how aid agencies engineered Pakistan's energy bureaucracy?—I
Meanwhile, captive gas consumption on the Sui infrastructure is down by up to 90 percent YoY and the power sector is refusing to honour its RLNG offtake commitments. This has left the country with 400 MMcf/d of surplus RLNG, forcing $12/MMBtu cargoes to be diverted to domestic consumers at just $4/MMBtu and inflicting up to $378 million in losses on the E&P sector due to curtailment of domestic gas production.
In addition, industries' billionsofdollars investments in captive power plants, and the entire ecosystems built around them, have gone to waste. The grid infrastructure also isn't equipped to support the extra load, with frequent fluctuations and disruptions that make any kind of manufacturing impossible and is demanding billions for new connections that won't be energized for three years. The grid tariff of 12 cents/kWh — among the highest in the world — is only the cherry on top.
As if shutting off access to gas wasn't enough, a $1.4 billion loan under the 'Resilience and Sustainability Fund' has spawned an equally perverse policy for furnace oil. Primarily used in industrial generators and boilers as an alternative to coal or gas, furnace oil is now treated at part with motor fuels, subject to a petroleum levy of Rs 82,000/ton on a base price of Rs 132,000/ton.
In comparison, exports fetch only around Rs 100,000/ton, yet any domestic buyers will have to pay Rs 234,000 per ton, effectively destroying any local market for FO. The net result is that a domestically produced commodity, used for domestic value creation, supporting domestic employment and livelihoods will be sold abroad well below its former domestic price.
This puts everyone, except the foreign buyer, at the losing end of the stick. Even the Minister for Petroleum has publicly opposed this levy, only to be shut down by a Finance Ministry evidently subservient to international lenders.
As part of the same commitments, a carbon levy has been imposed on motor fuels and furnace oil, starting at Rs 2.5/litre in FY26, ostensibly to incentivize EV adoption with the goal of 30% new passenger vehicle sales being electric by 2030. Never mind, however, that a decent EV in Pakistan costs $35,000 against a GDP per capita of $1,400, and that that there is little local EV production or charging infrastructure to support this goal.
Moreover, without transparency as to how the revenue generated form the carbon levy is used towards climate adaptation, the policy is simply where citizens are further extorted to fill FBR coffers while hills are being levelled to build golf courses, disrupting climate systems and exacerbating extreme weather events.
This is not to say all foreign aid, grants and loans are bad. There is undeniable value in promoting reform, building capacity and financing clean energy. But when institutions, policy, and even regulation are driven externally, accountability to the citizen suffers.
We end up with agencies answerable to donors, not the people. We get complex legal regimes no judge understands, regulatory bodies mimicking western models with no local enforcement, and energy contracts vulnerable to global investor backlash rather than domestic public scrutiny.
Pakistan's power bureaucracy, like much of its state, is not homegrown. It is a child—intellectually, legally, and operationally—of DFIs, born of externally driven mandates and orphaned shortly thereafter, only to be replaced with yet another donor-crafted framework.
With little organic buy-in or local ownership, each new regime is an experimental sandbox for outside agencies, perpetuating a cycle of pilot projects and policy reinventions rather than sustainable, homegrown reform. And until the people reclaim the space to design, govern, and evolve its institutions based on indigenous knowledge and public accountability, Pakistan's energy landscape will remain trapped in cycles of reform without results.
The irony is that while billions have been spent on institution-building, power theft, system losses, and circular debt continue to cripple the sector. Maybe it's time to ask: are the institutions failing because they're Pakistani — or because they never truly were?
(Concluded)
Copyright Business Recorder, 2025