Pakistan is in the midst of one of the worst energy crises in its history.

This is both
slowing the pace of economic activity and causing public unrest with prolonged outages
of electricity and gas. Capacity utilization in some key industries has fallen to nearly 50
percent. Worst affected is the fertilizer industry, which faces interruptions to its gas
supply and forced closures. Pakistan has the capacity to produce more than one million
tons in exportable surplus urea, yet in 2011-12 it imported more than 1.1 million tons.
This eroded the country’s foreign exchange reserves and effectively entailed the payment
of millions of dollars in subsidies, being the difference between the cost of locally
produced and imported urea. Pakistan urgently needs to make some strategic decisions
and change the national energy mix.

Immediately after assuming power, the government of Nawaz Sharif came up with two
policy decisions: pay half a trillion rupees (just under $5 billion) to energy companies
and announce a new power policy. Both steps are aimed at resolving problems plaguing
the companies belonging to the energy chain and bringing change to Pakistan’s energy
mix to optimize the average cost of electricity generation.

Pakistan’s government paid Rs260 billion in cash to independent power plants (IPPs) to
clear outstanding debt. It also issued bonds to pay off liabilities pertaining to state-
owned companies such as exploration and production firms and oil and gas marketing
entities. After clearing the debt of the IPPs, it was expected that they would be able to
generate 1,700MW in additional electricity, attenuating the shortfall that currently
exceeds 6,000MW. The situation is likely to improve over time.