Pakistan’s power sector is trapped in a cycle that grows more damaging with every new project added to the system. Circular debt keeps rising, electricity tariffs keep climbing and yet the country continues to build more power plants. Instead of fixing deep structural problems, policymakers are repeating the same mistake–adding capacity to a broken system.
Nowhere is this failure clearer than in the energy plans linked to Gwadar, where grand announcements ignore hard financial reality. At the heart of the crisis is excess capacity. Pakistan today has far more installed power generation capacity than it actually uses.
Demand growth has slowed due to economic weakness, high tariffs, and declining industrial activity. Yet the country is contractually bound to pay power producers fixed “capacity payments” whether electricity is used or not. These payments flow to coal, LNG, and other thermal plants even when they sit idle.
This is one of the main drivers of circular debt. Distribution companies fail to recover full costs because consumers cannot afford rising bills, theft remains high and losses persist. The government then borrows to plug the gap, delaying payments to generators and fuel suppliers. Debt piles up, interest costs rise, and the system sinks deeper into crisis. Adding more power plants does not solve this problem. It magnifies it.
Despite this, Pakistan continues to plan and promote new generation projects. The logic often sounds convincing on paper. It is that the future demand will rise, shortages must be avoided, and investment signals confidence. In practice, these arguments ignore current realities. The country is already paying for power it does not need. Each new plant adds another long-term payment obligation to an already overstretched balance sheet.
Gwadar sits at the center of this flawed thinking. The port city is frequently presented as a future industrial and energy hub that justifies new power projects. Coal plants, LNG terminals, and refinery-linked power proposals are framed as essential to Gwadar’s development. But Gwadar’s economic base remains thin. Industrial activity is limited, population growth is slow, and commercial demand is far below what these projects assume.
Building power plants for demand that does not yet exist — and may never materialize at the promised scale — locks Pakistan into decades of unnecessary payments. Even if the plants generate little electricity, capacity charges must still be paid in dollars or indexed tariffs. This is how excess capacity turns directly into circular debt.
The problem is not just financial. It is also systemic. Pakistan’s power sector struggles with poor planning, weak regulation, and politically driven decisions. Projects are approved without credible demand forecasts. Contracts prioritize investor protection over consumer affordability. Reforms to transmission, distribution, and governance are repeatedly delayed because they are difficult and politically costly. Instead of fixing losses, improving bill recovery, or modernizing the grid, the state takes the easier route: announce a new project. It creates the illusion of progress while pushing the real costs into the future. Circular debt becomes tomorrow’s problem — until tomorrow arrives, and the bill is even larger.
Gwadar makes this pattern more dangerous. Energy projects tied to the port are often justified on strategic grounds rather than economic ones. They are sold as symbols of partnership, connectivity, and geopolitical importance.This framing discourages scrutiny.Questioning demand, costs, or viability is treated as opposition to development itself.
Yet the numbers do not lie. Pakistan cannot afford more unused capacity. The country is already paying billions annually for idle plants. Tariffs for households and industry have surged, making electricity unaffordable and driving demand down further. This creates a vicious loop: higher tariffs reduce consumption, which increases excess capacity, which raises per-unit costs even more.
Gwadar-linked power projects risk deepening this loop. If industrial activity does not scale up quickly and there is little evidence that it will these plants will join the long list of under-utilized assets. Pakistan will pay for them anyway, draining public finances while basic services struggle for funding.
There is also an opportunity cost. Money tied up in capacity payments cannot be used to upgrade transmission lines, reduce losses, or invest in renewable energy that matches actual demand patterns. Instead of flexible, scalable solutions, Pakistan locks itself into rigid contracts that limit future choices.
Criticism must also be directed inward. Pakistan’s leadership has repeatedly failed to learn from past mistakes. The circular debt crisis did not appear overnight. It grew because warnings were ignored. Experts flagged excess capacity years ago, but projects continued. Gwadar risks becoming another chapter in this story, a place where ambition outruns economics.
A sustainable energy strategy would start by fixing the system before adding new capacity. It would focus on reducing losses, improving governance, and aligning generation with realistic demand. It would treat Gwadar as a gradual development project, not an excuse to rush large, inflexible investments. Pakistan does not suffer from a lack of power plants.
It suffers from a lack of discipline, planning and accountability. Until those issues are addressed, new projects will not bring relief. They will only deepen the debt. Circular debt and excess capacity feed each other. Gwadar, instead of breaking this cycle, threatens to tighten it. Unless Pakistan changes course, the country will keep paying more for electricity it cannot use and for promises that never turn into prosperity.
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