Pakistan is facing a severe energy crisis with rising electricity costs, power shortages, and growing national debt. Despite efforts to address these issues, the country still struggles with power generation and reliability. One major factor is the involvement in the China-Pakistan Economic Corridor (CPEC) which, while bringing investment, has also led to significant debt and high energy costs.
CPEC Power Projects and Debt Burden
CPEC’s Impact on Debt
CPEC was launched in 2013, with a focus on improving Pakistan’s energy sector through large investments from China. However, these projects have left Pakistan with large debts, especially due to the high costs of Chinese Independent Power Producers (IPPs). The projects were supposed to reduce energy shortages, but instead, Pakistan faces a high debt burden.
| Investment ($ Billion) | Power Projects | Electricity Generation (MW) | Debt Impact |
|---|---|---|---|
| $62 Billion | 21 Projects | 6,000 MW | $26 Billion |
These projects require Pakistan to pay large “capacity payments,” even if the power is not consumed, which further strains the economy.
High Capacity Payments to Chinese IPPs
Strain on Pakistan’s Budget
The capacity payments are a huge financial strain on Pakistan’s government. The Power Purchase Agreements (PPAs) with Chinese IPPs ensure that the country must pay high returns, sometimes exceeding 30%. This situation has led to mounting debt while still facing electricity shortages.
| Power Plant | Payment to Sahiwal Coal Plant | Total Payments to IPPs (2002) |
|---|---|---|
| Sahiwal Coal Plant | More than total 2002 payments | $200 Million+ |
Discovery of Oil and Gas Reserves
A Potential Solution
In a positive turn, Pakistan recently discovered massive oil and gas reserves in its territorial waters. These reserves could help reduce Pakistan’s dependence on imported oil and gas, potentially lowering energy costs.
| Resource Type | Potential Benefit | Timeframe to Extract |
|---|---|---|
| Oil & Gas Reserves | Reduce LNG & Oil Imports | 4-5 years |
However, exploration costs are high, and the process could take several years before it significantly impacts the economy.
Security Concerns and Exploration Challenges
Hindering Foreign Investment
Foreign investment in Pakistan’s energy sector is hampered by security risks. Recent terrorist attacks, including the killing of Chinese engineers in 2024, highlight the dangers in the country’s conflict zones, particularly in regions where oil and gas exploration is taking place.
| Incident | Date | Location | Impact |
|---|---|---|---|
| Attack on Chinese Engineers | March 2024 | Khyber Pakhtunkhwa | Temporary project halt |
| Balochistan Insurgent Attack | March 2024 | Gwadar Port | Attacks on Chinese assets |
These security concerns have made international companies hesitant to invest in exploration projects.
Limited Foreign Interest in Energy Exploration
Challenges in Attracting Investment
Due to security concerns and high costs, international interest in Pakistan’s energy sector has declined. Shell Plc. exited the market in 2023, and auctioned oil and gas blocks received few bids.
| Company | Action | Reason for Exit |
|---|---|---|
| Shell Plc. | Sold to Saudi Aramco | High security risks, low returns |
| International Bidders | No bids on blocks | High costs and security concerns |
The Road to Energy Independence
Pakistan’s energy future depends on overcoming the challenges of debt, security, and foreign investment. While the discovery of oil and gas reserves presents an opportunity, it will take years of investment and stability to fully benefit from these resources. The path to energy independence will require substantial reforms and international cooperation.
