Pakistan’s Rs 1.9 Trillion Energy Scam

How the Government Made Citizens Pay for Corporate Greed

Yesterday, Finance Minister Muhammad Aurangzeb stood in the Prime Minister’s House and announced what he called Pakistan’s “largest financing deal in history.” As government officials and bank executives celebrated, Prime Minister Shehbaz Sharif joined virtually from New York to witness the signing of a Rs 1.225 trillion loan agreement with 18 banks. The stock market soared to record highs. Media outlets hailed it as a “breakthrough” and “win-win situation.”

What they didn’t tell you is that every Pakistani family just received a bill for Rs 300,000, payable over the next six years through their electricity bills.

The Deal That Wasn’t

Pakistan’s circular debt crisis has reached Rs 2.4 trillion as of September 2025—representing 2.1% of the country’s entire GDP. This massive debt pile has grown exponentially from Rs 450 billion in fiscal year 2013, representing a staggering 433% increase in just over a decade. The debt represents money the government owes to electricity companies for power already consumed but never paid for, creating a vicious cycle that suffocates economic growth.

To understand the scale: Rs 2.4 trillion equals the combined annual budgets of Punjab and Sindh provinces. It’s more than Pakistan’s entire federal development budget for three years. Yet instead of addressing why this debt exists or recovering the Rs 1,000 billion in excess profits that a government inquiry found IPPs illegally earned, the government chose the path of least political resistance: make citizens pay through their monthly electricity bills.

The mechanics reveal the systematic nature of this wealth transfer. The Pakistan Banks Association facilitated agreements with 18 major banks—including Habib Bank, National Bank, MCB Bank, United Bank, and Allied Bank—to lend Rs 1.225 trillion to the Central Power Purchasing Agency at KIBOR minus 0.9%. With current KIBOR rates at approximately 11.7%, this translates to an effective interest rate of 10.8%—still substantially higher than what the government pays on its sovereign bonds.

The loan structure is designed to eliminate all risk for lenders. Unlike previous government borrowing that carried sovereign guarantees, this facility is secured directly against the debt service surcharge collected from every electricity consumer in Pakistan. Banks will literally deduct repayments from consumer bill collections before any money reaches the national treasury—ensuring zero default risk while guaranteeing returns funded by captive consumers.

Power Minister Awais Leghari confirmed the deceptive nature of the “no additional burden” claim. Until now, he admitted, consumers were paying the Rs 3.23 per unit debt service surcharge only to cover interest payments while principal amounts remained outstanding. Under the new arrangement, this same surcharge will now service both interest and principal on the Rs 1.225 trillion loan—but for six full years instead of the indefinite period it was previously expected to continue.

The financial mathematics expose the true cost. Annual collections from the Rs 3.23 surcharge generate approximately Rs 323 billion from Pakistan’s 40 million electricity connections. Over six years, this will total Rs 1.938 trillion—the Rs 1.275 trillion originally proposed (reduced to Rs 1.225 trillion after some payments were cleared) plus Rs 663 billion in interest payments.

To contextualize these numbers: Rs 663 billion in interest alone could fund the entire Higher Education Commission budget for 15 years, or build 1,300 new hospitals at Rs 500 million each. Instead, this money will flow directly to bank shareholders as guaranteed returns on a loan designed to bail out power companies that have already extracted Rs 1,000 billion in excess profits.

The government’s own data reveals the systematic nature of this crisis. From fiscal year 2007 to 2019, total financial injections into the power sector reached Rs 4.802 trillion through budgetary subsidies, loans, and other liquidity support. Yet circular debt continued growing by Rs 465 billion annually during this period, demonstrating that previous interventions similarly failed to address structural issues while imposing massive costs on public finances.

The current arrangement essentially converts uncertain government debt into guaranteed consumer obligations. The Central Power Purchasing Agency, which previously struggled to make payments to IPPs due to cash flow constraints, will now receive automatic funding through consumer surcharges—eliminating payment delays while ensuring IPPs receive their contracted returns regardless of actual electricity demand or system efficiency.

The Human Cost

For an average household consuming 350 units monthly, this surcharge adds Rs 1,130 to every electricity bill. Over six years, that’s Rs 81,360 per family—money that won’t go toward children’s education, healthcare, or savings. To put this in perspective: Rs 81,360 equals eight months of groceries for a middle-class family, or two years of school fees at a decent private school, or the down payment on a motorcycle that could generate income.

The impact varies dramatically across Pakistan’s economic spectrum, but every family feels the burden:

A shopkeeper earning Rs 40,000 monthly will pay Rs 1,130 extra every month—nearly three days of work just to service debts created by government policy failures. For a small electronics shop in Karachi’s Saddar, this means either raising prices on customers already struggling with inflation, or working from dawn to late night just to maintain the same take-home income. Many will be forced to reduce their children’s tuition classes or delay necessary repairs to their shops.

A teacher earning Rs 30,000 monthly faces a surcharge that consumes 3.8% of total income—forcing impossible choices between school fees and proper nutrition for children. In cities like Lahore or Faisalabad, where rent alone consumes Rs 12,000-15,000, this additional Rs 1,130 means skipping meat twice a week, buying lower-quality rice, or pulling a child out of the computer class they desperately need for future job prospects.

A factory worker earning Rs 25,000 monthly must dedicate 4.5% of earnings to this surcharge—equivalent to working an extra day each month to pay for electricity company profits. In Sialkot’s sporting goods factories or Faisalabad’s textile mills, workers already struggle with rising transport costs and food inflation. This surcharge might force families to share single rooms instead of renting separate apartments, or rely on government hospitals instead of private clinics when children fall sick.

For a retired government servant on Rs 20,000 pension, this Rs 1,130 represents 5.7% of total income. Many elderly Pakistanis will choose between their blood pressure medication and paying the full electricity bill, or reduce their already minimal social activities to compensate for higher utility costs.

A rickshaw driver earning Rs 30,000 monthly (on good months) faces the double burden of higher fuel costs and this electricity surcharge at home. The Rs 1,130 extra means fewer visits to the doctor for his diabetic wife, or postponing his daughter’s wedding that he’s been saving for over five years.

For urban middle-class families earning Rs 60,000-80,000 monthly, this surcharge delays major life decisions. The young couple planning to buy their first apartment will need to save an additional year. The family considering private school for their children will stick with the overcrowded government option. Parents planning to buy a car for safer transportation will continue relying on public transport.

Small business owners face compounded effects. A beauty parlor in Islamabad’s F-7 sector paying Rs 8,000 monthly for electricity will now pay Rs 9,300—forcing the owner to either increase service prices (risking customer loss) or reduce staff hours (affecting service quality). A small restaurant in Peshawar’s University Town serving iftar during Ramadan will see costs rise just as seasonal demand peaks, potentially eliminating the modest profits that sustain them through slower months.

Rural impact multiplies through agricultural connections. A wheat farmer in Punjab using tube wells for irrigation faces higher pumping costs that reduce already thin margins. The village shopkeeper extending credit to farmers will face delayed payments as agricultural incomes shrink. The local milk collection center will pay more for refrigeration while dairy farmers earn less due to higher feed costs from expensive electricity used in fodder processing.

Regional variations compound the burden. In Karachi, where summers require air conditioning for basic survival, middle-class families consuming 600-800 units monthly will pay Rs 1,938-2,584 extra per month. In northern areas like Gilgit-Baltistan, where electricity heats homes through harsh winters, the surcharge arrives precisely when consumption peaks and household budgets are already stretched.

The generational impact becomes clear through education choices. Thousands of families will delay or abandon plans to send children abroad for higher education—dreams that required saving every extra rupee. Local private universities, already expensive, become unaffordable as families redirect money from education savings to utility payments. The brain drain accelerates as young Pakistanis realize their parents’ financial capacity to support their aspirations has been permanently reduced.

Healthcare decisions turn tragic. The family postponing heart surgery because they need Rs 200,000 but must now budget an extra Rs 13,560 annually for electricity surcharges. The diabetic patient switching to cheaper, less effective insulin because the surcharge consumed money previously allocated to medical expenses. Elderly parents moving in with children not by choice, but because maintaining separate households became unaffordable.

Multiply these individual tragedies across Pakistan’s 40 million electricity connections, and you understand the scale of wealth transfer from ordinary families to corporate interests—a systematic redistribution that will continue every month for 72 consecutive months, with no escape for consumers who cannot survive without electricity.

The Companies That Won

At the center of this crisis are Independent Power Producers—private companies that generate electricity under contracts signed since the 1990s. These contracts are perhaps the most one-sided business agreements in Pakistan’s history.

IPPs receive guaranteed profits in US dollars while being protected from all business risks. They get paid for electricity Pakistan doesn’t need through “capacity charges”—fees for simply keeping power plants operational, regardless of whether they produce electricity. Most absurdly, “take-or-pay” clauses require the government to purchase minimum amounts of electricity whether it’s needed or not.

A government inquiry committee found these companies earned Rs 1,000 billion in excess profits through inflated costs and guaranteed payments. Instead of recovering this money—as other countries have done—the government decided to make citizens pay Rs 1,938 billion to cover their debts.

The numbers reveal the absurdity: Pakistan has nearly 46,000 MW of generation capacity but peak demand rarely exceeds 30,000 MW in summer and drops to 12,000 MW in winter. Citizens pay capacity charges for 16,000-34,000 MW of unused capacity every day. It’s like paying rent on three houses while living in one.

Global Context: How Other Countries Handle This

When South Korea faced similar energy sector problems in the early 2000s, it forced power companies to accept reduced profit margins and renegotiated contracts on terms favorable to consumers. The government recovered excess payments and restructured the sector around efficiency rather than guaranteed profits.

South Africa extended power purchase agreement terms while simultaneously reducing tariffs, ensuring companies remained profitable while lowering costs for citizens. India’s UDAY scheme reformed distribution companies through improved operational efficiency and debt restructuring that didn’t burden consumers.

The Philippines and Nigeria conducted transparent forensic audits when similar excess profit allegations emerged, recovering billions for treasuries rather than transferring costs to captive consumers.

Pakistan chose the opposite path: preserve every corporate privilege while maximizing citizen costs.

The IMF Connection

This debt arrangement is a centerpiece of Pakistan’s $7 billion IMF program, which requires “stringent energy sector reforms and long-term fiscal discipline.” The IMF supports this approach because it creates a predictable revenue stream for debt payments without requiring politically difficult confrontations with powerful business interests.

From the IMF’s perspective, it’s brilliant: guaranteed debt service funded by captive consumers who cannot refuse to pay their electricity bills. The risk of political instability from corporate pushback is eliminated by transferring all costs to families who have no choice but to accept higher bills.

The arrangement satisfies the IMF’s fiscal consolidation requirements while preserving the interests of IPPs who possess both economic leverage and political connections. It’s a textbook example of how international lending institutions often prefer regressive solutions that place adjustment costs on the most vulnerable populations.

The Long-term Trap

This deal establishes a dangerous precedent where government policy failures and corporate excess profits are automatically transferred to citizens through utility bills. The Rs 3.23 per unit surcharge—originally introduced as a temporary measure—now becomes permanent for six years and potentially longer. This represents a fundamental shift in Pakistan’s fiscal model: instead of governments bearing political costs for poor policy choices, those costs are embedded in essential services that citizens cannot refuse.

The precedent is chilling. If the government can transfer Rs 1.938 trillion in debt to captive utility consumers with minimal political backlash, what prevents similar arrangements for other policy failures? Pakistan’s highways department owes contractors billions—will a “road service surcharge” appear on fuel prices? The railways ministry has accumulated massive losses—will train tickets include a “rail restructuring fee”? This mechanism essentially immunizes future governments from the political consequences of fiscal irresponsibility by creating permanent revenue streams from essential services.

More concerning is what happens after 2031. The remaining Rs 1.175 trillion in circular debt will still exist, along with new debt that accumulates as the underlying structural problems remain unchanged. The government’s own projections show circular debt growing at Rs 400-500 billion annually due to continued inefficiencies, theft, and guaranteed IPP payments. By 2031, when the current loan is fully repaid, total circular debt could approach Rs 4-5 trillion, necessitating another “historic” bailout funded by consumers.

Officials already admit that “additional reforms” will be needed to address residual debt—diplomatic language for more citizen-funded bailouts. The pattern is established: allow debt to accumulate for 3-4 years, then arrange another loan facility backed by consumer surcharges or new utility taxes. Pakistan’s energy consumers have essentially become a permanent source of government financing, trapped in a system where they fund both current consumption and past policy failures.

The economic implications compound over time. Every business decision in Pakistan now assumes permanently high electricity costs that are structurally higher than regional competitors. When a textile manufacturer in Faisalabad competes with a factory in Bangladesh or Vietnam, they’re not just competing on labor costs or efficiency—they’re carrying the additional burden of financing Pakistan’s energy sector mismanagement through built-in surcharges that add 15-20% to electricity costs.

This cost disadvantage cascades through the entire economy. Manufacturing becomes uncompetitive as energy-intensive industries—steel, cement, chemicals, textiles—face cost structures that make exports unviable. The government’s own data shows that industrial electricity consumers pay effective tariffs of Rs 35-40 per unit when all surcharges are included, compared to Rs 8-12 per unit in competing countries like Vietnam, Bangladesh, and India.

The export decline is already measurable. Pakistan’s textile exports, which should benefit from global supply chain diversification away from China, instead face declining market share as energy costs make Pakistani products uncompetitive. The APTMA (All Pakistan Textile Mills Association) estimates that energy surcharges alone add 12-15% to production costs, effectively canceling out Pakistan’s labor cost advantages.

Unemployment rises as energy-intensive industries either shut down or relocate to countries with rational energy pricing. The 2023 industrial census showed 847 textile units closed or scaled down operations, with 67% citing energy costs as the primary factor. Steel re-rolling mills, which employed over 200,000 people across Pakistan, have seen 40% capacity reductions as electricity surcharges make locally produced steel more expensive than imports.

The brain drain accelerates as young Pakistanis realize their economic prospects are systematically constrained by utility bills that consume 15-20% of household income through various surcharges and taxes. Engineering graduates who might start manufacturing businesses instead emigrate to countries where electricity costs don’t predetermine business failure. Medical professionals leave for places where their salaries aren’t eroded by utility surcharges that effectively function as regressive taxation.

The demographic impact becomes self-reinforcing. As educated, productive citizens emigrate, the remaining population has less capacity to bear the fiscal burden, necessitating higher per-capita surcharges on those who remain. Rural-to-urban migration accelerates as agricultural productivity declines due to higher irrigation costs, but urban areas lack the industrial growth needed to absorb these populations due to uncompetitive energy costs.

International competitiveness erodes systematically. The World Bank’s Logistics Performance Index shows Pakistan falling relative to regional competitors partly due to higher transportation costs driven by energy surcharges affecting fuel prices. The Global Competitiveness Index ranks Pakistan 110th out of 141 countries, with electricity supply reliability and cost identified as critical constraints.

Foreign direct investment becomes nearly impossible in energy-intensive sectors. When multinational companies compare locations for new manufacturing facilities, Pakistan’s all-in electricity costs—including multiple surcharges—make it unviable even with lower labor costs. The China-Pakistan Economic Corridor industrial zones struggle to attract non-Chinese investors partly due to energy cost structures that eliminate profit margins.

The financial sector faces long-term stress as loan defaults increase among businesses unable to absorb permanently higher energy costs. Commercial banks’ advance-to-deposit ratios decline as creditworthy borrowers emigrate or close businesses, while remaining borrowers present higher risk profiles due to energy cost burdens. This creates a vicious cycle where available capital decreases precisely when the economy needs investment to overcome structural constraints.

Most dangerously, this model creates political incentives for continued mismanagement. Since policy failures can be transferred to utility consumers without immediate political consequences, there’s little pressure for genuine reform. The IPPs, banks, and government officials who benefit from this system have strong incentives to preserve it, while the dispersed costs on millions of consumers make organized resistance difficult.

The trap is complete: Pakistan’s energy consumers finance both current consumption and decades of past failures, while the structural problems that created those failures remain not just unaddressed but actively preserved by stakeholders who profit from the current arrangement. Each “solution” deepens the trap, making genuine reform more politically difficult and economically disruptive, virtually guaranteeing that the next crisis will be solved through even larger consumer-funded bailouts.

The Questions No One Asked

During yesterday’s ceremony, no one asked why the Rs 1,000 billion in excess IPP profits couldn’t be recovered first. No one questioned why citizens should pay for unused electricity capacity or why government-owned power plants earn the same excessive profits as private ones.

No one explained why IPPs receive guaranteed dollar-denominated profits while citizens bear currency devaluation risks. No one justified why “take-or-pay” contracts continue when Pakistan has massive excess capacity.

Most importantly, no one asked what prevents this entire cycle from repeating in five years when new circular debt accumulates under the same flawed system.

The Real Winners

The banking sector secured a guaranteed income stream backed by captive consumers who cannot default. IPPs received assurance that their accumulated dues will be paid in full without any reduction in future profit margins. The government avoided confronting powerful business interests while creating an appearance of decisive action.

The stock market’s record-high response tells the complete story: investors understand that a reliable revenue stream has been created at citizen expense, with no risk to corporate profits or government relationships with influential business groups.

What This Means for Pakistani Families

Your electricity bill now includes a permanent Rs 3.23 per unit tax for the next six years—Rs 323 billion annually collected from families already struggling with inflation, unemployment, and stagnant wages. This money could have funded universities, hospitals, or infrastructure. Instead, it will service debts created by policies that prioritized corporate profits over public welfare.

For a family spending Rs 5,000 monthly on electricity, this surcharge adds Rs 16,000 annually—equivalent to two months of grocery money or a child’s school fees. Multiply this across millions of families, and you understand the scale of wealth redistribution from ordinary Pakistanis to corporate shareholders.

The government’s celebration of this “historic achievement” while families face impossible choices between electricity payments and basic necessities reveals everything about policy priorities in today’s Pakistan.

Conclusion

This crisis didn’t happen overnight, and it won’t be solved by citizen-funded bailouts that preserve every element of the broken system. Real solutions require political courage to confront powerful interests rather than creativity in transferring costs to captive populations.

Pakistani citizens deserve leaders who recover excess profits from companies rather than guaranteeing their future earnings through utility bills. They deserve energy policies based on efficiency and competition rather than guaranteed corporate returns subsidized by household budgets.

Until those changes occur, families will continue paying the price for decades of policy failures while the beneficiaries of those failures continue profiting from their captivity.

September 25, 2025, should serve as a reminder that when governments call something a “win-win situation,” the first question should always be: who’s really winning, and who’s paying the bill?