Pakistan’s total installed electricity generation capacity officially exceeded 49,000 MW this year. On paper, this number marks the end of a crisis that cost the country economically for decades as persistent energy shortfalls halted industrial activity and challenged daily life. In practice, it signals the start of a different crisis. Pakistan now pays for power it does not use. The bill for that idle capacity has become one of the biggest financial burdens on the national exchequer. As per the latest information, Pakistani consumers paid over RS1.81 trillion in capacity charges, which is more than half of the total electricity bill. As of June 2026, it is reported that power sector circular debt stood at RS1.675 trillion, and CPEC-linked IPP receivables alone have reached RS543 billion. This is the conundrum that CPEC faces as it enters its second phase; a framework that was designed to address the energy crisis in its first phase now must account for abundance brought on by the large-scale energy projects completed in it. This was the right investment for the problem crippling the economy. However, since the completion of the first phase of CPEC, two things have changed.
First, generation capacity now is more than what the national grid can sell or absorb. Second, distributed solar installation has seen a surge quickly enough to begin eating into grid demand from the other direction. As households and businesses install rooftop solar to escape soaring electricity tariffs, they draw less from the grid but the fixed charges of the power plants built to serve them do not decrease because demand drops. Fewer units sold across the same fixed-cost base drive up the per-unit cost of grid electricity which in turn pushes more consumers to switch to solar power, which increases the per-unit cost even more. It is a self-reinforcing cycle that is making Pakistan’s power sector financial crisis worse, adding a new structural pressure on the issue of circular debt already driven by a combination of distribution losses, weak recoveries, delayed subsidies and expensive contractual obligations.
The objective now is not to increase electricity consumption for its own sake. Converting underutilized capacity into productive demand, which includes manufacturing goods, processing agricultural products, promoting exports and creating employment opportunities, is the goal. This is where the second phase of CPEC becomes relevant. Its success should not be measured by the list of megawatts generated, kilometers of roads built or the capital invested in them. What matters is whether the industrial, technological, and agricultural projects completed by it, boost the productive use of the infrastructure that has already been built.
Its success should not be measured by the list of megawatts generated, kilometers of roads built or the capital invested in them. What matters is whether the industrial, technological, and agricultural projects completed by it, boost the productive use of the infrastructure that has already been built.
The most direct way to break that cycle is through industrial expansion and Special Economic Zones (SEZs) are a clear mechanism. Rashakai in Khyber Pakhtunkhwa, Allama Iqbal Industrial City in Punjab, Dhabeji in Sindh and Bostan in Balochistan are all designated priority zones under the CPEC framework targeting textiles, engineering, electronics, food processing, pharmaceuticals and automobiles.
The reason is straightforward. Every megawatt a factory in an SEZ uses from the grid is a megawatt no longer sitting idle in exchange for a capacity payment. A fixed financial liability is turned into a productive economic input by industrial demand, which also create jobs, exports and value addition which underutilized capacity cannot accomplish. This is a case for rerouting demand toward the assets the country has invested in and developed.
Therefore, connecting the energy and industrial plans should be the top policy priority for the government. SEZ incentives and power planning should not be designed separately. Transmission capacity, reliable distribution infrastructure and the economics of electricity supply should be considered for locating and connecting the industrial clusters. However, the mere presence of electric supply is not enough to revitalize these zones. Reliable transmission and distribution, competitive industrial tariffs, efficient grid connections, predictable regulation logistics, and skilled labour all determine whether businesses will establish themselves in the area. The existing CPEC-supported transmission backbone is a real foundation, but bottlenecks in the wider distribution network need to be addressed before that foundation can be built on. The challenge is, therefore, not simply to offer factories affordable electricity but to establish an industrial ecosystem in which power, logistics, regulations and market access complement one another.
Solar merits a place in this plan. Rooftop solar should not be perceived as the enemy of the traditional power grid. The real challenge is designing a power system in which distributed solar, storage, industrial demands and the national power grid reinforce rather than financially undermine one another. Industrial zones can be designed to combine grid power with the distributed solar, storage and efficient load management allowing Pakistan to use its existing generation assets while building an adaptable system around them rather than treating solarization as a threat to be managed through tariff penalties on net metering.
The more profound question is what Pakistan wants CPEC 2.0 to measure. If the first phase focused on building the capacity to power an economy, the second phase must concentrate on building the economy that leverages it. The alternative is not neutral; it has a compounding cost. If left unaddressed, the current cycle will continue doing what it has done for several years. Circular debt swells, capacity payments take up a large share of the power sector bill, tariffs are increased to cover both. And rising tariffs push more consumers to adopt off-grid solar systems, shrinking the base that pays for everything else. Pakistan spent more than a decade building the capacity that it could use to boost the economy. CPEC’s next chapter should be about building the economy robust enough to leverage it.