Pakistan's Energy Sector: Debt Restructuring and Solar Challenges

On February 13, 2026, Power Minister Sardar Awais Leghari announced a subsidized scheme aimed at replacing old fans with energy-efficient models as part of broader efforts to address the challenges facing Pakistan's energy sector. The government is considering debt restructuring to lower consumer-end tariffs, which have been a significant factor driving consumers away from the national grid. This restructuring is being discussed with multilateral lenders, including the World Bank and the Asian Development Bank, and involves addressing a circular debt of Rs1.6 trillion and a recent Rs1.225 trillion financing from local commercial banks.

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Minister Leghari highlighted that the rapid adoption of solar energy has created challenges for the national grid. With solar energy contributing 55% to the national generation mix in FY2025 and projected to exceed 90% by 2035, the grid faces difficulties in managing peak demand, which can surge beyond 26,000 MW. During the day, demand drops to around 8,000 MW due to increased solar penetration. This situation necessitates keeping traditional power plants on standby, which adds to operational costs.

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The proposed large-scale refinancing of power sector debt could potentially reduce overall tariffs for industries from the current 11.5 cents per unit to between 8-9 cents per unit. Despite a 20% reduction in electricity prices over the past 18-20 months, residential tariffs remain 35-40% subsidized, with fixed charges imposed on households. The industrial power tariff has also been reduced by 35% to approximately 11.5 cents per unit, but further reductions are necessary for international competitiveness.

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Minister Leghari emphasized the need for rationalizing pricing structures to alleviate the burden of solarization on other consumers. He noted that while the "people-led solar revolution" has garnered international recognition for Pakistan's clean energy transition, the current pricing mechanisms are unsustainable. Minister for Climate Change Musadik Malik added that the fan replacement scheme is expected to reduce energy costs for consumers and contribute to climate resilience, with potential savings of Rs12,000 per year for households replacing old fans.

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Despite the government's initiatives, there are concerns regarding the effectiveness of the proposed debt restructuring and the impact of solar energy on the grid. Critics argue that without a comprehensive strategy to manage the transition to solar energy, the financial burdens may shift disproportionately onto consumers still reliant on traditional energy sources.

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The government aims to operationalize the fan replacement scheme within 90 days, with preparations reportedly completed in 81 days. This initiative, along with ongoing discussions on debt restructuring, will be crucial in shaping the future of Pakistan's energy landscape.

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