ISLAMABAD: The year 2025 delivered a mixed outcome for Pakistan’s energy sector, marked by persistent structural challenges alongside policy moves aimed at reform under the Shehbaz Sharif-led government.
One of the most entrenched problems remains the chronic circular debt, which continues to strain the entire energy value chain. To address the issue in the power sector, the government signed a Rs1.225 trillion financing agreement with a consortium of 18 banks. While the finance minister described it as the largest restructuring deal in Pakistan’s history, the arrangement essentially involved fresh borrowing to retire existing liabilities — a strategy critics liken to “old wine in a new bottle.”
Under the deal, the debt burden is ultimately expected to be passed on to electricity consumers. Similar approaches were adopted by previous governments, but experts argue such measures offer only temporary relief. They stress that a sustainable solution lies in tackling systemic inefficiencies, curbing power theft and improving governance — with privatisation of electricity distribution companies (DISCOs) often cited as a viable long-term remedy.
On the reform front, the government’s decision to introduce wheeling charges was widely viewed as a positive step. The mechanism allows private power producers to sell electricity directly to consumers instead of routing supply through DISCOs. The government has also announced that it will no longer purchase additional electricity, signalling a shift towards a more market-driven power sector. Wheeling charges will be determined by the National Electric Power Regulatory Authority (Nepra), effectively opening up the electricity market to greater competition and consumer choice.
Progress was also seen in the gas sector, where the government increased the allocation of newly discovered gas for private parties from 10 per cent to 35 per cent. The move was welcomed by the private sector and exploration companies, as it is expected to improve cash flows, encourage investment and help contain circular debt in the gas value chain.
Another initiative involved offering incremental electricity supply to the agriculture and industrial sectors at reduced tariffs to stimulate demand. The policy aims to mitigate capacity payments by running power plants closer to full capacity, particularly by utilising more liquefied natural gas (LNG).
LNG deal with Qatar
Towards the end of 2025, Pakistan reached an agreement with Qatar to divert 24 LNG cargoes to other buyers due to a surplus in the domestic gas market caused by subdued demand. The Petroleum Division claimed the deal would generate savings of around Rs1,000 billion.
However, structural challenges in the gas sector remain unresolved. Despite periodic surpluses, Pakistan continues to face gas shortages during winter, and even in summer domestic consumers experience supply disruptions. Captive power producers have also faced curtailments. Experts argue that comprehensive reforms are needed, including the introduction of a weighted average cost mechanism to blend imported LNG with cheaper domestic gas.
Although parliament had passed legislation during the previous Pakistan Tehreek-e-Insaf (PTI) government to enforce a weighted average gas price, opposition from Sindh led to legal disputes, stalling implementation.
For decades, Pakistan’s gas sector has been dominated by two public utilities operating extensive distribution networks. The World Bank has long advocated unbundling these utilities to improve efficiency and reduce losses.
In a positive development during 2025, the government lifted a multi-year ban on new LNG connections, allowing consumers to access LNG supplies — a move seen as a step towards boosting demand and better utilising imported gas.
Exploration activity also gained momentum, with bids opened for offshore exploration blocks. Of the 40 offshore fields offered, 32 licences were awarded to oil and gas exploration companies. Pakistan also succeeded in attracting a major Turkish firm for offshore drilling through a joint venture with local players, including Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited and Mari Energies.
Beyond hydrocarbons, progress was reported in the mineral sector, particularly the Reko Diq copper and gold project. Pakistan arranged $3.5 billion in financing, and exploration activities are already underway with the involvement of local companies and a Canadian firm, even before the project’s financial close.
Overall, 2025 reflected a year of cautious reform and incremental progress in Pakistan’s energy sector, with long-standing structural issues still demanding decisive and sustained policy action.
