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

Business Recorder

4 days ago

In Pakistan's power sector, aid doesn't just fund wires and transformers—it writes policy, births institutions, and designs governance frameworks. From WAPDA's unbundling to today's regional micro-hydro initiatives, foreign donors and multilateral lenders have played a decisive role in shaping the country's entire energy architecture.
What looks like a domestic public sector is, in fact, a landscape engineered through external influence often with little sustained success.
It began in the 1990s, when the World Bank, Asian Development Bank (ADB), and USAID launched structural adjustment programs that led to the fragmentation of WAPDA. This was no organic reform.
Under pressure from lending conditions, Pakistan was pushed to carve out the power sector into new corporate entities: generation companies (GENCOs), distribution companies (DISCOs), a transmission company (NTDC), and a regulatory authority (NEPRA). These institutions were seeded, shaped, and staffed under the watchful eyes of international consultants and donor-funded technical assistance.
The Pakistan Electric Power Company (PEPCO), too, emerged not from local institutional need, but from the ADB's desire to create a transition vehicle to oversee the corporatization process. NEPRA, established in 1997, was designed with heavy influence from the World Bank and USAID, importing global regulatory frameworks that were alien to Pakistan's administrative and legal culture. Its tariff formulas, licensing structures, and oversight roles mirror donor templates more than they reflect local energy realities.
This donor-led architecture didn't stop at institutional birth. ADB funnelled nearly a billion dollars into its Power Distribution Enhancement Investment Program, modernizing grid infrastructure and financing smart metering initiatives. The World Bank launched its own $195 million effort in 2021 to improve governance and efficiency in HESCO, MEPCO, and PESCO. JICA upgraded NTDC's load dispatch systems. IFC and OPIC helped design frameworks to attract private investment in wind, solar, and K-Electric.
Even the electricity market itself—the Competitive Trading Bilateral Contract Market (CTBCM)—was conceived, drafted, and piloted through World Bank technical assistance.
And when Pakistan recently attempted to unilaterally renegotiate renewable energy contracts signed with private investors, it was the IFC, ADB, and Islamic Development Bank that issued a sharp warning: don't undermine the sanctity of contracts or risk the collapse of $2.7 billion in clean energy investment.
At the provincial level, the pattern repeats. Punjab and Sindh's DISCOs were granted $200 million in January 2025 by ADB to upgrade infrastructure and adopt smart systems. Sindh also benefited from the Sindh Cities Improvement Program, which coupled power and sanitation reforms under multilateral guidance.
In Khyber Pakhtunkhwa and FATA, the EU-funded PEACE program and USAID-backed Sarhad Rural Support Programme have installed hundreds of micro-hydro plants in off-grid areas. Balochistan, too, saw GIZ and other donors support rural electrification and local governance models through BRSP.
These efforts, while not without local champions, largely owe their scale, structure, and sustainability to external designs. Even post-18th Amendment devolution hasn't insulated the provinces from donor penetration. Technical assistance programs by WHO and ADB continue to shape provincial energy planning and system governance.
The story is similar, and in many ways worse, in the gas sector. During the mid-1980s to late 1990s, the government agreed with the World Bank to link gas prices to oil; the international market price for fuel oil became the benchmark for domestic consumers and the landed cost (including duties, taxes and other import charges) for all other consumers.
The balance between consumer prices linked to international oil prices and revenue requirements of the Suis accrued as fiscal revenues to the government, allowing full-cost-recovery and providing signals to consumers about the true value of gas, thereby encouraging efficiency.
However, in 2006, again on advice of the World Bank the government established a ceiling price for gas, effectively delinking it from oil and politicizing the commodity, which caused producers to lose out on significant revenue when oil prices rose sharply in 2008.
When gas was made a tool for exerting political influence, the ensuing distortions left no incentives to invest in domestic E&P and no significant gas discoveries were made as a result (Figure 1).
The use of gas for power generation had been promoted, both for captive generation by industries and in the grid energy mix.
The landmark 1994 Private Power Policy, which allowed and incentivized industries to invest in captive power generation was designed with World Bank support and advisory from the IFC and IBRD and implemented under a PPP framework via the newly created Private Power and Infrastructure Board, again established under the World Bank supported Second Private Sector Energy Development Programme (PSEDP II).
Following drying up of investment and activity in E&P and rapidly depleting domestic gas reserves, DFIs provided full support for development of LNG import infrastructure.
The USAID's Energy Policy Project, alongside World Bank, IFC and ADB feasibility studies, conducted the technical and financial analyses and PPP structuring that advised Pakistan to develop LNG import capacity. ADB and IFC provided over $160 million in financing and equity to set up the Port Qasim LNG terminal.
The Planning Commission's proposals to enter long-term LNG SPAs were based on feasibility studies and policy advice funded or co-commissioned by USAID's Energy Policy Project and the World Bank/IFC and ADB teams. They stressed that only 15–20-year SPAs could unlock commercially-viable financing for both the import terminals and the downstream power plants, otherwise investors could not recover the billions in upfront liquefaction and shipping assets.
(To be continued tomorrow)
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