Pakistan’s Gas Gamble Threatens Economy and Environment

By Shahid Shah

Pakistan’s energy crisis has grown into a cautionary tale that goes beyond numbers on a ledger. It is a story of economic mismanagement, environmental neglect, and policy decisions that have repeatedly placed short-term gains above long-term stability. What was once hailed as a route to energy security—imported liquefied natural gas (LNG)—has, paradoxically, become a trap, one that threatens not just fiscal stability but the everyday lives of millions of ordinary Pakistanis. Rising bills, inflation, and declining living standards are no longer abstract threats; they are the lived reality for families across the country.

The scale of the problem is staggering. Gas alone accounts for roughly Rs 2.6 trillion of Pakistan’s circular debt, with the power sector adding another Rs 1.6 trillion. Together, this Rs 4.2 trillion burden is more than a mere statistic; it is a reflection of decades of policy missteps and decisions heavily influenced by multilateral lenders. Institutions such as the World Bank, the International Finance Corporation (IFC), and the Asian Development Bank have repeatedly encouraged Pakistan to adopt a fossil fuel–dependent energy model, offering loans, technical guidance, and contracts that seemed promising on paper but have exposed the country to global price volatility and currency swings.

The turning point came in 2015, when the IFC backed Pakistan’s first LNG terminal at Port Qasim with $35 million in equity and loans to Engro Corporation. At the time, the project was celebrated as a milestone, a step toward modernizing Pakistan’s energy infrastructure. Today, however, it stands as a cautionary tale of the dangers embedded in long-term dollar-based contracts. As the rupee weakened and LNG prices surged on the global market, Pakistan’s debt grew unchecked, draining foreign exchange reserves and leaving policymakers scrambling. Majid Bilal of the Indus Consortium has noted that what was sold to the public as development has effectively become a debt trap, one whose costs are shouldered by both the people and the environment.

The economic consequences are immediate and deeply felt. Billions of rupees are spent every year on capacity payments for electricity that rarely reaches the end user. Market-based pricing introduced under IMF-backed reforms has made utilities increasingly unaffordable, while farmers struggle to absorb rising fertilizer costs and small businesses teeter on the brink of closure. Low-income families, unable to pay soaring gas and electricity bills, are forced to resort to unsafe fuels, risking both health and safety. Meanwhile, the government’s attempts to shift gas from power generation to the wider grid collide with declining electricity demand, as rooftop solar adoption grows. The result is a rising burden of fixed costs that falls squarely on the poorest households.

The environmental costs are equally alarming. Methane leaks from gas infrastructure, far more potent than carbon dioxide, exacerbate climate change and local air pollution. Communities along the coast and near industrial zones face a surge in respiratory and skin illnesses, while the destruction of mangrove forests along Karachi’s coast has removed vital buffers against storms and sea-level rise, undermining fisheries and the livelihoods of coastal communities. Fisherfolk such as Majeed Motani describe a double blow: reduced fishing routes and polluted waters have struck at both health and income, leaving families with little recourse.

The structural problem is self-reinforcing. Pakistan imports fuel in dollars while collecting revenue in rupees, meaning every global price spike magnifies debt and drains reserves. Despite mounting evidence that this model is unsustainable, multilateral lenders continue to fund fossil fuel projects, undermining the country’s own clean energy ambitions. In this cycle, the social, economic, and environmental costs are borne disproportionately by those least able to absorb them—the poorest citizens, small business owners, and vulnerable communities.

Breaking free from this cycle requires more than incremental adjustments. It demands a fundamental rethink of Pakistan’s energy strategy. Renewable energy, improved grid efficiency, and decentralized systems offer viable, sustainable alternatives that could reduce costs, ease debt pressure, and protect the environment. Transparency and accountability from international lenders are equally crucial, to ensure that foreign assistance supports independence rather than dependency. Pakistan is rich in solar and wind potential, with over 2,000 hours of sunlight each year and untapped coastal wind corridors, resources that could underpin a shift toward energy independence and environmental resilience.

The country now faces a defining choice. Policymakers can continue down the current path of borrowing, fossil fuel dependence, and rising circular debt, or they can invest in a sustainable, self-reliant energy future. The stakes are high: the consequences of inaction will not remain confined to the balance sheets of utility companies. They will ripple through society, shaping the nation’s economic and social destiny for decades. Every kilowatt-hour of imported gas carries a cost far greater than its market price—paid in debt, in rising illness, and in the erosion of communities that are already struggling to survive.

Pakistan’s energy crisis, once seen as a technical challenge, is now unmistakably a human one. It is a crisis of governance, foresight, and ethical responsibility, demanding urgent attention. Without decisive reforms, the circular debt will not simply remain a statistic on a government report; it will define the limits of opportunity, prosperity, and hope for generations to come. For a nation already battered by economic shocks, the time to confront the true cost of gas is not tomorrow—it is now.

The writer is a senior financial journalist. He holds Alfred Friendly, Daniel Pearl and Geo Journalism fellowships.