Understanding Pakistan Energy Import Costs and Crisis

Pakistan is spending an estimated Rs. 3.5 trillion every year on energy imports that could potentially be avoided through better planning, energy efficiency and local manufacturing, according to research presented at an energy security conference organized by the LUMS Energy Institute.

The research highlighted how the country continues to import billions of dollars worth of liquefied natural gas for winter heating while much of its existing electricity generation capacity remains unused. Experts attributed the growing costs to poor planning, delayed adoption of building codes and the failure to revive domestic manufacturing of energy equipment.

This ongoing financial drain places immense pressure on national foreign exchange reserves and worsens the circular debt crisis plaguing the utility sector. Citizens and businesses face escalating utility bills, which dampens industrial productivity and squeezes household budgets across the country. Addressing these systemic inefficiencies requires a coordinated approach involving federal bodies, provincial authorities and industrial stakeholders.

Why Unused Power Capacity Drives Import Costs

Pakistan has more than 36,000 megawatts of installed electricity generation capacity, but its baseline electricity demand remained around 8,000 megawatts between 2015 and 2023, despite population growth, according to LUMS Energy Institute research.

National Grid Pakistan Chairman Dr. Fiaz Chaudhry said much of the additional generation capacity had been developed to meet cooling demand during summer, leaving a significant portion unused for much of the year. The resulting capacity payments have added to electricity costs and contributed to circular debt.

At the same time, Pakistan imports approximately $2.7 billion worth of liquefied natural gas to meet space and water heating requirements during the four winter months. Chaudhry said the mismatch between electricity generation capacity and seasonal energy demand reflected a growing problem in the country energy planning.

Capacity payments are fixed financial obligations that the government must pay to power producers regardless of whether their electricity is dispatched to the grid. When demand drops in cooler months, these unutilized plants still demand compensation, driving up the baseline cost of every unit of electricity sold to consumers. Historical over-reliance on imported fossil fuels for base load generation has left the economy vulnerable to global price shocks.

How Delayed Building Codes Limit Energy Savings

The LUMS Energy Institute research also identified delayed implementation of energy conservation building codes as a major source of avoidable electricity consumption. The federal government approved the codes in 2023, with the potential to reduce cooling demand by 51 percent.

However, Punjab, Sindh and Balochistan have yet to adopt the codes, leaving their implementation pending. The Capital Development Authority and the Khyber Pakhtunkhwa government have adopted the regulations and are at different stages of implementation.

According to the research, improving energy efficiency in just 25 percent of residential buildings could reduce peak electricity demand by approximately 3,000 megawatts and generate potential annual energy cost savings of Rs. 442.6 billion.

Buildings account for a massive share of urban electricity consumption, largely driven by inefficient architectural designs that rely heavily on mechanical air conditioning during intense summer months. Enforcing strict insulation, double-glazed windows and proper orientation standards can drastically lower thermal gain. Without strict provincial adoption, millions of new structures continue to be built without energy-saving mandates, locking in high power demand for decades.

How Local Manufacturing Could Replace Imports

LUMS Energy Institute researchers also identified significant opportunities to reduce dependence on imported electricity equipment through domestic manufacturing. A power sector indigenization assessment estimated that approximately Rs. 1.1 trillion worth of equipment demand across transmission and distribution could be met through local production, against projected demand of Rs. 1.9 trillion.

The assessment evaluated the manufacturing readiness of approximately 49 local companies and outlined a proposed framework for a national indigenization roadmap. Experts said Pakistan previously manufactured several types of power plants, equipment and spare parts locally before WAPDA unbundling in 1998, but domestic production capacity was subsequently underutilized as reliance shifted toward imported conductors, switches and other equipment.

The researchers also noted that an Engineering Development Board led team was required to announce an electricity equipment indigenization plan by June 2026 under the National Electricity Policy 2023, but the deadline passed without the plan being introduced. LUMS Energy Institute urged the relevant government institutions to accelerate the long delayed Power Sector Indigenization Plan to revive domestic manufacturing and reduce foreign exchange spending.

Reviving domestic industrial capacity for heavy electrical hardware creates high-skilled engineering jobs and keeps capital within the national economy. Factories capable of producing transformers, grid station components and high-voltage cables can significantly shorten supply chain lead times for utility companies. Relying entirely on foreign suppliers exposes the national grid to currency devaluation risks and international shipping disruptions.

Renewable Energy Offers Long Term Savings

Separately, LUMS Energy Institute research on Pakistan net zero transition outlined a modeled pathway to almost completely decarbonize the power sector. Under the proposed pathway, fossil fuel generation would decline from 49 percent in fiscal year 2024 to approximately 1 percent by fiscal year 2040.

The projected energy mix would comprise hydropower at 47 percent, wind at 25 percent, nuclear at 18 percent and solar at 8 percent. Researchers said integrated energy planning, improved efficiency, renewable energy integration and domestic manufacturing could help make electricity more affordable and strengthen Pakistan long term energy security.

LUMS Energy Institute research team, including technical experts Umar Farooq and Faisal Javaid Mughal, presented the findings at the event attended by National Grid Pakistan Chairman Dr. Fiaz Chaudhry, Independent System and Market Operator CEO Dr. Masood Ahmad and National Grid Pakistan CEO Altaf Hussain Malik. Chaudhry, who had warned about a potential capacity trap in 2014 and 2015, said evidence based research had also supported revised least cost generation planning, delivering approximately $17 billion in projected savings.

Transitioning toward indigenous renewable sources shields the country from volatile international petroleum and gas markets. Hydropower and solar assets leverage local geographic advantages, offering clean and exceptionally low marginal costs once the initial capital expenditure is amortized. Proper transmission network expansion remains a prerequisite to absorb these intermittent green power sources without destabilizing regional grid frequencies.