ISLAMABAD: Pakistan’s two largest energy-sector liabilities came into sharper focus this week as the gas sector’s circular debt climbed to Rs3,600 billion and the power regulator approved a $47 billion generation expansion plan running to 2035, while rejecting a $900 million battery storage proposal as unnecessary.
The gas sector’s circular debt has reached Rs3,600 billion, of which Rs2,100 billion is interest and Rs1,500 billion is principal.
Virtual economic review talks with the International Monetary Fund will be held in the last week of September, and the Ministry of Finance will brief the Fund on the settlement plan for the gas sector’s circular debt.
Sources said a plan has been prepared to eliminate the gas sector’s Rs3,600 billion circular debt in three years. A reduction of Rs528 billion is estimated in the first year, Rs473 billion in the second year and Rs433 billion in the third year.
Under the plan, Rs840 billion of dividends from gas companies will be used to reduce the circular debt, while Rs270 billion is estimated to be raised from the petroleum levy.
Deferring additional LNG cargoes from Qatar is projected to yield Rs310 billion, take-and-pay arrangements with the power sector Rs15 billion, and full cost recovery of LNG a further Rs60 billion.
Sources said the issue of mark-up charged on the gas sector’s circular debt will also be settled. Recovering the full cost of LNG, however, carries the risk of higher gas prices for consumers.
The approval comes as the Lahore High Court hears a petition against power and gas load-shedding and consumers absorb a fresh round of fuel and utility increases.
Separately, the National Electric Power Regulatory Authority (NEPRA) approved a $47 billion power expansion plan to meet the country’s electricity generation and transmission requirements up to 2035.
NEPRA approved the Integrated System Plan 2025-35 submitted by the Independent System and Market Operator (ISMO), but rejected a $900 million Battery Energy Storage System (BESS) investment as unnecessary.
NEPRA also disclosed that the cheapest renewable electricity ever secured in Pakistan was not included in national planning for more than a year, despite repeated warnings from the regulator.
According to the plan, peak electricity demand is expected to rise from 26,950 megawatts in 2025 to 35,521 megawatts in 2035. Meeting that demand will require a total of 26,045MW of new generation capacity, comprising 17,485MW of already committed projects and 8,560MW of newly optimised proposed capacity.
During the same period, 2,577MW of generation capacity is estimated to be retired. The expected cost of these generation projects is $47.13 billion, while a further $10.65 billion will be required for transmission system upgrades.
Declining to approve the proposed Battery Energy Storage System, NEPRA held that its cost had not actually been incorporated and evaluated in ISMO’s optimisation model. The regulator directed that a full technical study be carried out, after which the proposal may be reconsidered.
NEPRA also did not endorse the proposal to complete the NGC-KEL interconnection transmission line for K-Electric in 2028, saying the timeline is unrealistic because construction of such a line typically takes about five years.
The plan was prepared by ISMO, the entity that operates and manages Pakistan’s power system. The Integrated System Plan has two principal components: one relating to the construction of new power plants, and the other to the construction of new transmission lines.
NEPRA directed ISMO to address several shortcomings before preparing the next plan, including clearer explanation of data and the removal of discrepancies in tariff-related projections.
A notable feature of the decision is that NEPRA’s members were not fully in agreement, and each member wrote a separate note setting out reservations.
Member Maqsood Anwar Khan objected to the exclusion of certain hydropower projects, including Gabral Kalam, Madyan, Kalam Asrit and Asrit Kedam, which had earlier been declared approved and protected. He argued that these projects were quietly removed without clear or legal justification, which could discourage investors who had committed funds on the basis of earlier assurances.
Stakeholders including planners, business bodies and provincial governments also expressed reservations, saying Pakistan already has 15 to 20 gigawatts of surplus generation capacity while existing plants are operating at only about 45 per cent capacity. They warned that further investment could increase circular debt and capacity payments, the burden of which would ultimately fall on electricity consumers through their bills.
The sharpest criticism from within NEPRA came from member Amina Ahmad. In her dissenting note she said K-Electric had secured tariffs as low as 3.09 US cents per kilowatt hour during a renewable energy auction in late 2024 — the lowest tariff ever in Pakistan.
According to her, ISMO did not include these projects, totalling about 640MW, in its plans for more than a year, despite NEPRA raising the issue repeatedly, including in a request made in March 2026.
Amina Ahmad disclosed that ISMO had used incorrect data in its model. After the data was corrected in July 2026, it emerged that including the cheaper electricity reduced rather than increased system cost. This, she said, significantly affects NEPRA’s confidence in ISMO’s optimisation process.
NEPRA Chairman Waseem Mukhtar supported the final decision but identified a larger problem, saying Pakistan is paying for surplus generation capacity, which is why electricity bills keep rising. He said daytime demand on the national grid has already fallen to about 12,000MW as more consumers turn to solar panels and other alternatives instead of relying on the national grid.
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