Pakistan has made significant progress in reforming its energy sector over the past year, with the government introducing wide-ranging measures aimed at strengthening energy security, reducing costs and ensuring long-term sustainability.
Finance Minister Muhammad Aurangzeb, while presenting the Federal Budget 2026-27 in the National Assembly on Friday, said energy remains central to economic stability. He said reforms have been carried out across the power, oil and gas sectors despite regional challenges, with the long-term goal of achieving greater self-sufficiency and reducing reliance on sovereign guarantees.
The finance minister said the power sector is undergoing one of its most extensive restructuring phases. Improved financial discipline and operational efficiency helped the government save more than Rs143 billion in subsidies during the outgoing fiscal year compared with the allocated budget. He said these savings were achieved through reforms rather than by increasing pressure on consumers.
Aurangzeb also said negotiations with Independent Power Producers (IPPs) are expected to generate long-term savings of around Rs3.7 trillion, marking a major financial relief for the sector.
A key shift highlighted in the budget is the launch of the Competitive Trading Bilateral Contract Market (CTBCM) in January 2026. This reform moves Pakistan away from a single-buyer electricity system towards a competitive market structure. The first competitive auction for around 800 megawatts of electricity is expected in September 2026, allowing electricity trading through market-based mechanisms.
The government is also working on a nationwide exercise to identify and verify subsidised electricity consumers. This will support a new Direct Subsidy Mechanism from January 2027, under which assistance will be targeted only to eligible households, similar to the Benazir Income Support Programme model.
On circular debt, the minister said net-zero accumulation was achieved during the current fiscal year, preventing further growth in liabilities. Financing arrangements worth Rs1.225 trillion have also been finalised to address the existing stock of circular debt.
Reforms are also under way at the National Transmission and Dispatch Company, where functions are being separated to improve efficiency and support market development.
The government says these measures aim to stabilise the energy sector, attract investment and improve electricity affordability and reliability for consumers nationwide.
