Pakistan’s energy sector is like a puzzle that is not easy to solve. It is costing the country trillions of rupees while still failing to meet its basic electricity needs. The electricity system is in serious financial burden, draining huge amounts of money and pushing the whole setup to the edge of collapse due to confusing policies. A recent audit  reveals not just bad planning, but a broken structure where Pakistan pays billions to power plants that sit idle—a phenomenon that has led frustrated consumers to leave the grid and become self-sufficient to fulfill their energy needs.

According to the latest audit report on the Power Division, its related organisations, and the regulatory body, the National Electric Power Regulatory Authority (Nepra), Pakistan spent Rs3.09 trillion to buy electricity from all the independent power producers (IPPs). This total comes from a mix of sources, including hydropower, regasified liquefied natural gas (RLNG), residue fuel oil (RFO), imported and local coal besides smaller amounts from solar, wind and gas. Three costly fuels, RLNG, imported coal and RFO, alone took up Rs1.4tr, which is 47% of the national electricity budget. Yet, when it comes to actually generating power, these fuels only delivered 24pc of the country’s electricity, even though their plants were built to handle 45pc based on their full capacity. This huge gap (45pc capacity versus 24pc delivery) stems from inefficient plants, bad planning and overall mismanagement.

Energy sector—no more self-sustaining 

The budget analysis for Pakistan’s Power Division tells a story of a sector that has consistently failed at self-sustenance based on its revenue. In the fiscal year 2022-23, the government planned to spend Rs355bn but ended up losing Rs705bn, nearly double the original amount. The pattern was repeated in 2023-24, as the planned budget of Rs451bn ballooned to Rs770bn with a 171pc increase from the initial allocation.

This extra money wasn’t for the new projects or building a better infrastructure for the future. Instead, it went into emergency funds to keep things running. For example, Rs48bn was added to the Pakistan Energy Revolving Fund (PERF)—a special pool of money designed to make sure power producers and fuel suppliers are paid on time.It helps to cut down on delays and control the growing problem of circular debt. Another Rs262bn was paid directly to IPPs and government power producers (GPPs). 

In essence, the government uses this budget for subsidies and last-minute bailouts to prop up the system. It covers shortfalls of the unpaid consumer bills, theft, technical losses, and other inefficiencies. But every year, the planned budget falls way short of what’s actually needed and this leads to rescue efforts that only add to Pakistan’s circular debt.

Electricity generation and installed capacity—poles apart

Pakistan’s total installed capacity, the maximum amount of electricity all its power plants could produce at full speed, shows how the system is divided among different fuels. For 2023-24, about 25pc of this capacity came from hydropower, 17pc each from RLNG and furnace oil (RFO), 11pc from imported coal, around 8pc from nuclear sources, and 6pc from local coal, with smaller portions from wind, solar and gas.

In reality, the actual electricity generated and used from these sources didn’t match their installed capacities. The hydropower sector did better than expected: with 25pc of the capacity, it supplied 31pc of the country’s power; nuclear power, holding just 8pc of the capacity, delivered 18pc; local coal, with only 6pc of the capacity, produced 12pc of the electricity. 

On the flip side, some of the priciest fuels barely contributed: imported coal with 11pc capacity, only generated 4pc; furnace oil, with 17pc capacity, managed just 2pc; and RLNG, which produced 19pc (slightly above its 17pc capacity), ate up the biggest share of the national budget.

Fossil fuel plants or white elephants 

A closer look shows that out of Rs3.09tr spent on electricity in 2023-24, the three biggest burdens on national exchequer were plants running on the RLNG, imported coal and furnace oil.

The RLNG stood out as the most expensive option. It cost the country Rs753bn, nearly one-fourth (24pc) of the entire national power purchase bill. What makes RLNG especially tough is that most of this cost came from the fuel itself, not just fixed fees called “capacity charges” that are paid by the government for plants just to exist and be available. 

The total fuel bill for 2023-24 was about Rs1.2tr out of the overall Rs3.09tr. Out of which almost Rs561bn, or 47pc of the country’s total fuel bill, was spent just on burning this imported gas. On top of the fuel costs, another Rs192bm went into capacity charges. At the end, the RLNG provided 19pc of the power but ate up 24pc of the money.

Imported coal performed even worse. Pakistan spent Rs511bn on it, which is 17pc of the total budget, but it only generated 4pc of the country’s electricity. Here’s the real issue: only Rs90bn went into actual fuel while a massive Rs421bn (over 80pc of the cost) was paid as capacity charges to keep the plants ready. Basically, most of the money went to power plants that barely operated.

Furnace oil or RFO is another outdated source that’s sucking up resources. These plants make up 17pc of the total installed capacity but produce less than 2pc of the electricity. Even so, they pulled in Rs174bn from the budget. About half of that, Rs87bn, went into fuel, and another Rs87bn into capacity payments. Once again, billions were spent on plants that rarely ran.

To put it in clearer terms, the RLNG promised 16.8pc of the capacity, produced 18.7pc of the electricity, but consumed 24.4pc of the budget (Rs753bn). Imported coal promised 10.9pc of the capacity, produced only 3.9pc of the electricity, yet took 16.5pc of the budget (Rs511bn). Furnace oil promised 17.3pc of the capacity, produced a mere 1.9pc of the electricity, but still claimed 5.7pc of the budget (Rs174bn). Two of them, imported coal and RFO, contributed almost nothing compared to their costs and relied heavily on capacity fees to stay afloat.

Consumers pay for plants that barely operate?

The main reason these fuels are draining so much money boils down to how Pakistan's contracts with IPPs. At the centre of the problem are capacity payments—fixed fee the government has to pay to power plants just to keep them available whether they generate electricity or not. It's like paying rent for a house even if you don’t live in it.

This set-up hits hardest with imported coal and furnace oil. Both are costly fuels to start with, but the real weight comes from the fixed costs of the plants, not the fuel. For instance, imported coal plants received Rs421bn out of their total Rs511bn bill (over 80pc) just in capacity charges. That means Pakistan paid them hundreds of billions to mostly sit idle, while they generated only 4pc of the country’s power. Furnace oil plants follow the same pattern. They cost Rs174bn overall, with almost half in capacity payments, yet they produced just 2pc of the electricity.

The RLNG is a bit different but just as harmful. Unlike coal and oil plants, these gas plants do run and produce close to what they promise. But the fuel is extremely expensive. Out of the Rs753bn spent on RLNG, Rs561bn (47pc of total fuel bill) went just in buying the imported gas. Global prices for LNG can spike dramatically due to events like the Ukraine war, leaving Pakistan stuck paying whatever the market demands. Add Rs192bn in capacity fees on top, and the RLNG becomes the largest single drain on the budget.

The future looks even bleaker

The outlook for Pakistan’s electricity costs in the coming year paints a darker picture. Official forecasts show that the total bill for buying power will not drop back to last year’s Rs3.09tr. In the best-case scenario, it rises to about Rs3.18tr, and in worse cases, it climbs to Rs3.43 to 3.48tr. No matter what, the costs are only going up.

A big reason for this increase is that most of the money is not spent on fuel that actually gets burned. Instead, it goes toward keeping power plants on standby. In all the forecast scenarios, about two-thirds of the cost (roughly Rs2.06 to 2.16tr) comes from capacity payments. The fuel costs can vary based on prices and water levels in rivers (around Rs1.05 to Rs1.25tr), while operations and maintenance add a small amount (about Rs71bn to Rs76bn). This setup traps the system: even if less fuel is used, the fixed bills keep coming. When you look at the cost per unit of electricity, the forecasts estimate an average power purchase price of Rs24.75 to 26.70 per kilowatt-hour for 2025-26.

Pakistan has huge potential to produce cheap energy from renewable sources, especially with the rise of solar power, which now has consolidated itself in Pakistan’s energy landscape and pairs well with storage batteries; and thus, has helped many people become self-sufficient in their daily electricity needs. The audit report recommends that the government take a well-rounded approach, including better planning for sustainable power generation that includes local options, tariffs designed to cut costs and encourage upgrades to infrastructure, higher efficiency in the system, and stronger oversight. It stresses the need to tackle high electricity prices, improve reliability, and focus on customer needs to rebuild trust in the national grid, boost overall consumption, and create a sustainable energy future.