Pakistan Plans Power Sector Indigenisation 2026-2035

The Government of Pakistan is formulating the country’s first Power Sector Indigenisation Plan (PSIP) for 2026–2035, a comprehensive policy initiative aimed at enhancing domestic manufacturing capacity for electrical power equipment and curbing reliance on imports, as reported by Business Recorder.

The proposed framework sets out a long-term strategy to expand indigenous production across the generation, transmission, and distribution segments, covering equipment such as transformers, switchgear, cables, meters, and control systems. Policymakers indicate that the initiative is designed not only to stimulate industrial growth but also to position Pakistan within regional and global energy supply chains.

The roadmap is structured in phased implementation. The immediate phase prioritises harmonisation of procurement policies and standardisation of technical specifications. The medium-term agenda focuses on establishing testing infrastructure and promoting specialised industrial clusters. Over the longer term, the strategy seeks to build research and design capabilities alongside advanced manufacturing competencies.

The framework draws upon projections from the Indicative Generation Capacity Expansion Plan and the Transmission System Expansion Plan, as well as trade data and analytical studies undertaken by the Ministry of Energy and the National Electric Power Regulatory Authority. It addresses market context, international trends, domestic electricity demand scale, supply chain development, regulatory reforms, and institutional implementation mechanisms.

Authorities have indicated that the plan will leverage fiscal incentives, structured procurement commitments, and strategic partnerships with international manufacturers to advance localisation. Proposed trade policy measures include identifying priority areas for import substitution, introducing phased localisation targets linked to investment benchmarks, rationalising tariff structures to encourage domestic production, and ensuring predictable demand through public procurement guarantees.

Given that numerous power sector projects in Pakistan are financed by institutions such as the World Bank and the Asian Development Bank, or executed by foreign EPC contractors, the government is engaging with these stakeholders to recalibrate procurement frameworks to facilitate meaningful participation by local manufacturers in donor-funded projects.

Initial localisation measures have emerged in selected distribution projects financed by the Asian Development Bank, where domestic meter manufacturers secured contracts via competitive bidding. Similarly, Chinese contractors operating under the China–Pakistan Economic Corridor have been encouraged to collaborate with local firms, resulting in partial localisation of towers, cables, and related hardware in certain schemes.

At present, Pakistan remains heavily import-dependent for electrical power equipment. Official statistics indicate that imports declined from $539.1 million in FY2022 to $416.8 million in FY2023; however, this contraction primarily reflected short-term macroeconomic constraints rather than structural gains in domestic production capacity.

Government estimates suggest that over 90 percent of national demand for electrical equipment continues to be met through imports. Developers of major power projects frequently procure high-capacity and technologically advanced plant components from foreign suppliers due to limited domestic capability.

Historical data reflects a rise in power equipment imports from approximately $641.4 million in 2014 to a peak of $1.36 billion in 2021, followed by a decline amid import control measures.

Despite import dependence, the domestic electrical equipment market has expanded considerably. The total market size—encompassing imports and local output—has grown from roughly $3.4 billion in 2015 to an estimated $5.2–5.3 billion in 2024, driven by increasing investment in generation and grid infrastructure. The transformer segment alone now exceeds $1.3 billion annually, while switchgear and control equipment collectively account for nearly $1 billion.

With substantial expansions in generation, transmission, and distribution anticipated over the coming decade, demand is projected to rise further. The PSIP targets increasing the share of locally manufactured equipment in procurement expenditure to 30–35 percent within three years, compared to less than 15 percent currently.

Complementary trade reforms under consideration include rectifying inverted duty structures that impose higher tariffs on raw materials than on finished imports, preserving duty exemptions on essential inputs and capital goods, and offering targeted tax incentives for investment in manufacturing facilities and testing infrastructure.

Additional measures under review include integrating a localisation scoring mechanism into public procurement evaluations, granting accelerated depreciation allowances for new production assets, and providing fiscal incentives to support specialised testing laboratories and research centres.