Ms.SajjdaLodhiNotes based on Gernal Government Priorities.docx

Ms. Sajjdalodhi Notes.
Political Priorities For Energy Development In Pakistan
Energy Politics in Pakistan: Dependence on International Loans, IPPs, and Foreign Agreements
Introduction
Energy is the lifeline of a modern economy. In developing countries like Pakistan, energy policies determine the pace of industrial growth, agricultural productivity, and social development. However, instead of relying on indigenous and small-scale solutions, Pakistan has historically tied its energy projects to international loans, Independent Power Producers (IPPs), and foreign agreements. This dependence has created a cycle of external debt, import reliance, and rising energy costs. The reasons behind this trend are rooted in financial constraints, political priorities, quick-fix approaches, lobbying pressures, and governance weaknesses. This essay examines the underlying causes, analyzes the consequences, and suggests alternatives for a more sustainable energy future.
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Historical Context of Energy Development in Pakistan
Since independence in 1947, Pakistan’s energy demand has consistently outpaced its supply. In the early decades, hydropower projects such as Warsak Dam and Mangla Dam, funded with foreign assistance, laid the foundation of power generation. However, during the 1980s and 1990s, Pakistan shifted towards thermal power and IPPs under structural adjustment programs imposed by international financial institutions. This marked the beginning of Pakistan’s heavy reliance on foreign investors and international loans for energy projects.
By the 2000s and 2010s, new agreements for LNG imports, coal power under the China–Pakistan Economic Corridor (CPEC), and oil-based power plants further deepened dependence on foreign sources. Instead of systematically promoting local renewable energy projects such as solar, wind, and biogas, governments repeatedly chose large-scale, loan-driven projects.
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Reasons Behind Pakistan’s Dependence on International Loans and IPPs
1. Financial Constraints and Lack of Domestic Capital
Large energy projects such as LNG terminals, coal plants, or hydropower dams require billions of dollars in investment. Pakistan’s domestic banking and financial system is too weak to provide such funding independently. As a result, governments turn to the World Bank, Asian Development Bank, IMF, and bilateral lenders such as China, Saudi Arabia, and Gulf countries. Foreign Independent Power Producers also step in with investments but at the cost of long-term power purchase agreements that often favor investors more than the state.
2. Political Visibility and Prestige
Mega-projects serve as political trophies. Leaders want to cut ribbons on billion-dollar power plants, inaugurate dams, or sign high-profile deals that demonstrate their “achievement” in solving energy crises. Small-scale projects like decentralized solar panels in villages or biogas plants in rural areas

1. Ms. Sajjdalodhi Notes.
Political Priorities For Energy
Development In Pakistan
Energy Politics in Pakistan: Dependence on
International Loans, IPPs, and Foreign
Agreements
Introduction
Energy is the lifeline of a modern economy. In developing
countries like Pakistan, energy policies determine the pace
of industrial growth, agricultural productivity, and social
development. However, instead of relying on indigenous
and small-scale solutions, Pakistan has historically tied its
energy projects to international loans, Independent Power
Producers (IPPs), and foreign agreements. This
dependence has created a cycle of external debt, import

2. reliance, and rising energy costs. The reasons behind this
trend are rooted in financial constraints, political
priorities, quick-fix approaches, lobbying pressures, and
governance weaknesses. This essay examines the
underlying causes, analyzes the consequences, and
suggests alternatives for a more sustainable energy future.
Historical Context of Energy Development in
Pakistan
Since independence in 1947, Pakistan’s energy demand
has consistently outpaced its supply. In the early decades,
hydropower projects such as Warsak Dam and Mangla
Dam, funded with foreign assistance, laid the foundation of
power generation. However, during the 1980s and 1990s,
Pakistan shifted towards thermal power and IPPs
under structural adjustment programs imposed by
international financial institutions. This marked the
beginning of Pakistan’s heavy reliance on foreign
investors and international loans for energy projects.

3. By the 2000s and 2010s, new agreements for LNG imports,
coal power under the China–Pakistan Economic
Corridor (CPEC), and oil-based power plants further
deepened dependence on foreign sources. Instead of
systematically promoting local renewable energy projects
such as solar, wind, and biogas, governments repeatedly
chose large-scale, loan-driven projects.
Reasons Behind Pakistan’s Dependence on
International Loans and IPPs
1. Financial Constraints and Lack of Domestic
Capital
Large energy projects such as LNG terminals, coal plants,
or hydropower dams require billions of dollars in
investment . Pakistan’s domestic banking and financial
system is too weak to provide such funding independently.
As a result, governments turn to the World Bank, Asian
Development Bank, IMF, and bilateral lenders such as
China, Saudi Arabia, and Gulf countries. Foreign
Independent Power Producers also step in with

4. investments but at the cost of long-term power purchase
agreements that often favor investors more than the state.
2. Political Visibility and Prestige
Mega-projects serve as political trophies . Leaders want to
cut ribbons on billion-dollar power plants, inaugurate
dams, or sign high-profile deals that demonstrate their
“achievement” in solving energy crises. Small-scale
projects like decentralized solar panels in villages or
biogas plants in rural areas may be more sustainable but
do not bring the same level of political visibility. As a
result, governments prioritize big projects, even if they
increase dependence on foreign actors.
3. Quick Fix Approach to Energy Shortages
Pakistan has faced recurring power crises and load-
shedding , especially in the 1990s and 2000s. Instead of
long-term planning, successive governments pursued quick
fixes . Imported LNG or oil plants can be set up relatively
quickly compared to developing domestic renewable
energy infrastructure. Similarly, coal plants under CPEC

5. were established rapidly to meet immediate shortages,
ignoring environmental and long-term economic costs.
4. Influence of International Financial Institutions
and Donor Conditions
Many energy policies in Pakistan are shaped by external
lenders. For example, the World Bank and IMF often
encourage privatization and involvement of IPPs. Energy
sector reforms are tied to loan disbursements, which
pressures governments into adopting policies that
prioritize foreign participation over domestic initiatives.
5. Lobbying by Powerful Business Groups and IPPs
The energy sector in Pakistan is heavily influenced by
vested interests . IPPs and large investors lobby
governments for contracts that guarantee fixed returns on
investment, even when plants remain idle. This creates a
bias in favor of large foreign-funded projects, while small-
scale local solutions receive little attention or policy
support.
6. Weak Governance and Policy Gaps

6. Pakistan’s energy governance is centralized and often
suffers from policy inconsistency . Every new government
introduces new energy policies, often reversing or
neglecting previous initiatives. Renewable energy policies,
net-metering for solar, and incentives for local projects
remain underdeveloped. Without strong institutional
frameworks, small-scale solutions are unable to compete
with big, foreign-backed projects.
7. Debt-Driven Economy and Strategic Alliances
Pakistan’s dependence on foreign aid and loans also
shapes its energy choices. Energy projects are often tied to
diplomatic relations—for example, LNG deals with Qatar,
oil agreements with Saudi Arabia, or coal projects with
China. Thus, energy projects become not only economic
but also geopolitical tools , binding Pakistan’s energy
future with foreign agreements.
Consequences of This Dependence
1.Circular Debt Crisis – Due to guaranteed high returns
for IPPs and inefficiencies in collection, Pakistan

7. faces an ever-growing circular debt (over PKR 2.6
trillion in 2025), worsening financial instability.
2.High Electricity Prices – Imported fuels (LNG, oil,
coal) are dollar-dependent. Fluctuations in global
markets directly raise electricity tariffs in Pakistan,
burdening households and industries.
3.Environmental Costs – Reliance on coal and oil
projects increases carbon emissions, contributing to
climate change and air pollution, while renewable
resources remain underutilized.
4.Loss of Energy Sovereignty – Dependence on foreign
agreements reduces Pakistan’s ability to independently
shape its energy future. International lenders and
investors often dictate terms that serve their interests
first.
5.Neglect of Local Potential – Pakistan has vast
renewable energy potential (solar in Balochistan,
wind corridors in Sindh, and hydropower in Khyber
Pakhtunkhwa and Gilgit-Baltistan). However, these

8. resources remain underdeveloped due to focus on
foreign-backed projects.
Alternatives and the Way Forward
To break this cycle of dependence, Pakistan needs to shift
its energy priorities:
Promote Decentralized Renewable Energy –
Encourage rooftop solar, community wind projects,
and small-scale hydropower that can reduce import
reliance and empower local communities.
Strengthen Domestic Financing – Develop green
bonds, public-private partnerships, and local
investment models to reduce dependence on foreign
loans.
Policy Continuity and Institutional Strengthening –
Create long-term renewable energy policies with
guaranteed incentives and protections for local
investors.
Diversify Energy Mix – Reduce reliance on imported
fuels by maximizing indigenous coal (clean
technology), hydropower, and renewable sources.

9. Encourage Local Manufacturing – Build domestic
capacity in solar panels, wind turbines, and biogas
technologies to create jobs and reduce import bills.
Conclusion
Pakistan’s dependence on international loans, IPPs, and
foreign agreements in its energy sector is the result of
financial weakness, political priorities, quick-fix
approaches, and external pressures . While these projects
have temporarily reduced shortages, they have created
deeper problems such as circular debt, high tariffs, and
vulnerability to global fuel prices. The neglect of small-
scale, local, and renewable energy solutions is both a
missed opportunity and a structural flaw. A sustainable
energy future for Pakistan requires policy reform,
investment in renewables, empowerment of local
solutions, and reduced reliance on foreign agreements .
Only then can Pakistan achieve energy security, economic
independence, and environmental sustainability.