ISLAMABAD: The year 2025 was marked by a mix of challenges and policy measures in Pakistan’s energy sector, as the Shehbaz Sharif-led government sought to address long-standing issues while introducing market-oriented reforms. One of the most persistent problems has been the chronic circular debt, which has long affected power generation, distribution, and consumers alike.
In a major step, the government inked a Rs1.225 trillion financing agreement with a consortium of 18 banks to reduce the circular debt. While Finance Minister Muhammad Aurangzeb described it as the largest restructuring deal in Pakistan’s history, experts noted that it essentially mirrors previous strategies: borrowing to pay old debt, with the cost ultimately passed on to electricity consumers. Analysts say this is a short-term fix, and long-term solutions require addressing inefficiency in the power sector and tackling electricity theft. Privatisation of electricity distribution companies (DISCOs) is widely cited as the most effective long-term remedy.
On the positive side, the government introduced wheeling charges, allowing private-sector power producers to sell electricity directly to clients rather than through DISCOs. Under this arrangement, the government announced it would not purchase further electricity, effectively opening the market for competitive electricity sales. National Electric Power Regulatory Authority (NEPRA) is responsible for determining wheeling tariffs, a move expected to improve efficiency and reduce financial burdens on the sector.
In the gas sector, the allocation of newly discovered gas to private parties increased from 10 percent to 35 percent, a decision welcomed by exploration companies and the private sector. This move is expected to reduce circular debt and improve cash flows for oil and gas firms. Incremental electricity supply at lower tariffs was also introduced for agriculture and industrial consumers, encouraging higher consumption and full utilisation of power plants through increased LNG use.
In late 2025, Pakistan reached an LNG deal with Qatar, redirecting 24 cargoes to other buyers amid a local oversupply, reportedly saving the country around Rs1,000 billion. Nevertheless, the sector continues to face challenges in meeting domestic demand, especially during winter and summer peaks, and captive power producers have sometimes been denied gas supply. Experts highlight the need for a weighted average cost mechanism to integrate imported LNG with domestic gas, a reform partially addressed by legislation during the previous PTI government but stalled due to provincial disputes.
The government also revived LNG connections for consumers, previously banned, and awarded 32 of 40 offshore exploration licences, attracting foreign investment. A Turkish company entered a joint venture with OGDC, Pakistan Petroleum, and Mari Energies for offshore drilling, signaling renewed investor confidence after years of policy uncertainty.
In the mineral sector, Pakistan arranged $3.5 billion financing for the Reko Diq copper and gold mining project. Local firms, alongside a Canadian partner, have begun exploration work ahead of finalising project financing.
Overall, 2025 reflected a dual reality for Pakistan’s energy sector: immediate relief through debt restructuring and market reforms, coupled with ongoing structural challenges requiring deeper reforms in power and gas distribution, energy efficiency, and investment facilitation.
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