The Price of Broken Promises

Pakistan’s Port Qasim Fallout with Qatar

When Qatar’s Al-Thani Group invested in the 1,320-megawatt Port Qasim Power Project near Karachi, it was more than just another power plant. It was a gesture of confidence a signal from the Gulf that Pakistan’s economy, despite its fragility, could still be trusted with serious capital. The $2.09 billion project, built jointly with China’s Power Construction Corporation under the China–Pakistan Economic Corridor (CPEC), was meant to symbolize a new era of energy security. Instead, it has become the defining case study in how Pakistan’s own dysfunction has turned that promise into ruin.

The Al-Thani Group’s notice of intent to divest, formally issued this week, did not come out of the blue. The unraveling began a year ago, when Sheikh Hamad bin Jassim bin Jaber Al Thani Qatar’s former prime minister and one of the region’s most influential investors, wrote directly to Islamabad demanding $450 million in overdue payments owed by Pakistan’s state-owned power purchaser. The letter went unanswered. The dues remained unpaid. Months turned into a year, and now, quietly but conclusively, one of Pakistan’s most powerful partners has decided to walk away.

This is more than a business dispute. It is a diplomatic embarrassment and a financial warning rolled into one. When a Gulf royal family with both political and personal ties to Pakistan decides to divest from a flagship project, it sends a clear message to every boardroom and sovereign fund in the region: Pakistan’s guarantees are no longer worth the paper they’re printed on.

The Anatomy of a Collapse

The Port Qasim Power Project was meant to be a cornerstone of CPEC’s “early harvest” phase, a fast-track investment to tackle Pakistan’s chronic power shortages. Built at a cost of over $2 billion, it was financed through loans from the China Exim Bank, guaranteed by the Government of Pakistan, and partly funded through over $1 billion in Qatari equity. The contract offered handsome returns a 27 percent dollar-indexed return on equity, fixed for decades based on the assumption that the government would make timely capacity payments.

That assumption collapsed. The Central Power Purchasing Agency (CPPA-G), which buys electricity from independent producers, now owes roughly Rs 1.6 trillion to power companies, with total circular debt approaching Rs 2.4 trillion as of 2025. Port Qasim alone is owed tens of billions in unpaid invoices. The company has warned of possible suspension of operations an event that would trigger default under Pakistan’s sovereign guarantee.

What makes this failure worse is its absurdity. Pakistan’s installed capacity stands at roughly 42,000 megawatts nearly double current demand yet Karachi still faces load-shedding, industries run on diesel generators, and consumers pay some of the highest tariffs in South Asia. Every rupee borrowed to pay these obligations deepens the deficit; every delay in payment erodes what little trust remains among investors.

Kickbacks, Overpricing, and the LNG Connection

The Port Qasim fiasco is not an isolated case. It sits atop a network of political patronage and corruption that has long defined Pakistan’s energy sector. From inflated LNG import contracts to opaque power purchase agreements, the system is designed not to deliver cheap electricity but to extract rents.

Transparency International Pakistan raised early warnings over irregularities in CPEC power projects including Port Qasim citing inflated capital costs, padded “interest during construction,” and non-transparent tariff approvals by the National Electric Power Regulatory Authority (NEPRA). These irregularities transformed a viable project into an overpriced burden.

The LNG terminal deals at the same Port Qasim site, awarded during the previous PML-N government, have also been cited by investigative agencies as potential vehicles for kickbacks through manipulated procurement and long-term overpricing. While probes fizzled out, the suspicion never did.

For Qatar, both a power investor and major LNG supplier, the optics are damning. One arm of the Pakistani state owes Qatari investors hundreds of millions; another seeks to renegotiate LNG contracts signed at premium rates. From Doha’s perspective, it looks less like partnership and more like opportunism disguised as policy.

The Structure of the Scam

The real scandal of Port Qasim and indeed of Pakistan’s entire power sector does not lie in suitcases of cash or off-shore accounts. It lies in the paper itself. The contracts, not the bribes, are the real instruments of capture.

Between 2015 and 2017, under the early wave of CPEC’s energy corridor, Pakistan’s government locked itself into a series of Independent Power Producer (IPP) agreements so structurally lopsided that they might as well have been designed for insolvency. Drafted under political pressure and sold to the public as strategic investments, these contracts guaranteed private profit at public risk.

The framework’s key pillars were economically suicidal:

1. Dollar-denominated returns:
   All investor profits and in some cases debt service were pegged to the U.S. dollar, even though the power was sold domestically in rupees. Every time the rupee depreciated, the government’s liability ballooned. Between 2017 and 2025, the rupee lost over 60 percent of its value. That single design choice alone multiplied Pakistan’s repayment obligations several-fold.

2. Capacity payments irrespective of demand:
   Under the take-or-pay clause, Pakistan was legally bound to pay each plant for its installed capacity whether it produced power or not. In effect, idle plants became perpetual annuities for their owners. Today, these capacity payments consume more than half of all power-sector expenditures, roughly Rs 1.4 trillion annually even as large swathes of the country remain in darkness.

3. Sovereign guarantees for everything:
   Each project carried an iron-clad sovereign guarantee from the federal government. If the Central Power Purchasing Agency (CPPA-G) defaulted, the Ministry of Finance was obliged to pay regardless of fiscal condition. These guarantees were meant to reassure foreign investors; instead, they transferred every ounce of risk from the private to the public ledger.

4. Full pass-through of imported fuel costs:
   When global coal and LNG prices soared after 2022, the pass-through clause ensured that producers bore no pain. Consumers and taxpayers absorbed every price shock. The government, terrified of tariff hikes ahead of elections, deferred payment and the arrears compounded into what economists now call the sovereign circular debt spiral.

Collectively, these terms created a machine that prints losses. Each rupee collected from consumers barely covers a fraction of what is owed to producers. The system’s design guarantees bankruptcy by default.

When questioned later, former Prime Minister Shahid Khaqan Abbasi conceded that regulators lacked both technical and legal expertise to scrutinize the fine print of long-term Power Purchase Agreements. NEPRA, the sector’s chief regulator, had neither the modeling capacity nor the independence to challenge foreign-drafted contracts. The agreements were reviewed, rubber-stamped, and sealed often in English legal templates derived from earlier Gulf and Chinese projects that local officials scarcely understood.

The result was privatized profit and socialized debt. Every inefficiency in the grid line losses, theft, delayed recoveries eventually migrated upward to the federal treasury. Investors faced no exposure, no performance risk, no currency risk, and often no accountability. Their returns were not tied to electricity supplied but to capital invested. Whether power plants produced megawatts or sat idle, the money kept flowing.

Meanwhile, politically connected businessmen many of whom had insider knowledge of the tariff structure bought stakes early, secured financing on government guarantees, and later sold out to foreign buyers at multiples. Some cashed out before the plants even went commercial. The public was left paying inflated tariffs for electricity that cost more to generate than to import from the grid next door. By 2025, the legacy of those contracts had metastasized into a national debt crisis masquerading as an energy policy. Circular debt, once a technical issue, became a sovereign one. The very guarantees that were supposed to attract investment have now ensnared Pakistan in an endless loop of borrowing to pay off previous obligations.

And at the heart of it all lies a fundamental truth: the corruption was not in the envelopes it was engineered into the architecture.

A Crisis Beyond Finance

What investors now see is not just fiscal mismanagement but institutional decay. A sovereign guarantee means little when the sovereign cannot pay. Regulatory decisions are routinely reversed. Contracts signed by one government are contested by the next. Investigations appear designed more to intimidate than to ensure accountability.

Security risks have deepened the exodus. In October 2024, two Chinese engineers working on the Port Qasim plant were killed in a bombing near Karachi airport the latest in a string of attacks on foreign personnel. For international investors, Pakistan’s risk premium is no longer theoretical; it is existential.

The result is capital flight. In September 2025, foreign direct investment fell 55 percent year-on-year to just $185 million, compared to India’s $81 billion. Even Bangladesh outperformed. Stability and predictability attract capital; Pakistan offers neither.

The Myth of Reform

Every government has promised to fix the energy sector. In June 2025, Islamabad announced a Rs 1.275 trillion financing arrangement with 18 local banks to reduce circular debt the latest in a series of temporary bailouts dating back three decades. Each failed for the same reason: they treated symptoms, not causes.

Circular debt is not an accounting fluke. It is the inevitable result of political subsidies, poor billing recovery, and systemic inefficiency. Distribution companies lose nearly one-fifth of the electricity they buy through theft and technical losses. Tariffs are set below cost to appease voters. The state pays private producers but fails to collect from consumers. In between, bureaucrats and middlemen take their cut.

Until this structure changes, no reform will hold. Pakistan can reschedule payments and restructure loans, but it cannot rebuild trust until it honors its commitments and enforces accountability throughout the system.

A Sovereign Guarantee in Ruins

What makes the Port Qasim crisis especially dangerous is that it touches the core of Pakistan’s sovereign credibility. A sovereign guarantee is supposed to be sacrosanct, a nation’s word backed by its full faith and credit. When a government defaults on such a guarantee, it doesn’t just lose an investor; it loses its standing in the international financial system.

For years, Pakistan used these guarantees to lure foreign investment into sectors it could not reform. Those guarantees were sold as bulletproof. Now, with Qatar’s exit, that illusion is shattered. Other investors will read this moment for what it is: if Qatar, one of Pakistan’s friendliest and wealthiest partners, cannot get paid, no one can.

What Remains

The Port Qasim Power Project still operates, for now, but under strain. It burns imported coal paid for in dollars, sells power in rupees, and waits months for payment. Its foreign engineers work under heavy security. Its investors are exiting. It stands as a monument to what happens when contracts are signed without foresight, guarantees are given without capacity, and governance is replaced by graft.

Qatar’s departure is not merely a divestment; it is a judgment. It tells the world that Pakistan’s energy sector, once touted as the backbone of its growth story has become a liability. It exposes how a nation’s economic architecture, when corroded by corruption and incompetence, can collapse under its own guarantees.

References

1. Government of Pakistan – Ministry of Energy (Power Division). “Circular Debt Report 2025.” Islamabad, June 2025.

2. Business Recorder. “Qatar’s Al Thani Group signals intent to divest from Port Qasim Power Project.” November 2025.

3. Pakistan Today – Profit. “Port Qasim Power Project seeks urgent funds to settle Rs 480 billion dues to Chinese IPPs.” July 16, 2025.

4. Reuters. “Pakistan signs $4.5 billion loan deal with local banks to ease power sector debt.” June 20, 2025.

5. Transparency International Pakistan. “Assessment of Irregularities in CPEC Energy Projects.” Report, 2022.

6. Global Energy Monitor. “Port Qasim EPC Power Station.” Updated 2025.

7. AidData, William & Mary. “China Exim Bank loans for Port Qasim Coal Fired Power Project, Pakistan.” Dataset ID #52904.

8. Dawn Newspaper. “Pakistan’s Circular Debt Hits Rs 2.396 Trillion.” March 2025.

9. Arab News Pakistan. “Islamabad finalizes Rs 1.225 trillion circular debt resolution.” September 2025.

10. Power Technology Magazine. “Port Qasim Coal-Fired Power Plant, Karachi – Project Overview.” 2025.

11. Daily Times. “Pakistan’s Energy Circular Debt Crisis and the Challenge of Reform.” August 2025.

12. Institute of Strategic Studies Islamabad (ISSI). “Understanding Pakistan’s Energy Debt Structure.” Policy Brief, October 2024.

13. International Monetary Fund (IMF). “Pakistan Staff Country Report No. 25/164: Energy Subsidies and Fiscal Risks.” May 2025.

14. Bloomberg Data and UN CTAD FDI Monitor. “Foreign Direct Investment Flows 2025: Pakistan vs Regional Peers.” September 2025.