Since the early 1990s, Pakistan’s power sector has undergone repeated structural reforms intended to improve operational efficiency and reduce the financial burden on public finances. In theory, each step was rational and well-designed. The 1994 Power Policy, for example, was introduced to rapidly overcome generation shortfalls by attracting private investment through Independent Power Producers (IPPs) and guaranteed Power Purchase Agreements (PPAs).
These agreements committed the government to pay IPPs based on installed capacity rather than actual demand, which initially helped reduce load-shedding but failed to anticipate the long-term consequences of an inflexible supply-demand gap. As a result, Pakistan’s installed generation capacity now stands at nearly 46,000 MW, yet average annual utilization remains only around 34%, leaving consumers to bear the cost of expensive capacity payments for electricity that often goes unused.
Building on this, the government moved in 1998 to unbundle WAPDA’s Power Wing into separate entities for generation (GENCOs), transmission (NTDC), and distribution (DISCOs). This vertical disintegration was intended to create transparency and performance accountability. However, the deeper governance and socio-cultural problems – including political interference, electricity theft, and local non-compliance – were never effectively addressed.
According to NEPRA’s State of Industry Report 2023-24, Pakistan’s overall T&D losses for DISCOs reached 18.31%, exceeding the regulatory target of 11.77% by over 6.5%, which added an estimated Rs.276 billion to the circular debt in just one year. The recovery shortfall remains equally problematic: while the average collection rate for DISCOs hovered around 92.44% in FY 2023-24, this gap contributed an additional Rs. 314 billion to the circular debt, which now totals more than PKR 2.5 trillion.
Importantly, the operational performance of each DISCO varies widely, often reflecting local security and governance conditions. For example, IESCO, FESCO, GEPCO, and LESCO – which serve regions with relatively stronger governance, such as Islamabad, Faisalabad, Gujranwala, and Lahore – consistently report the lowest T&D losses and the highest recovery rates. IESCO’s T&D losses are around 8.1% with a recovery rate above 95%, while FESCO maintains losses of approximately 9.1% and similar recovery levels.
In contrast, DISCOs operating in conflict-affected or less-governed areas – such as PESCO in Khyber Pakhtunkhwa, QESCO in Balochistan, and SEPCO in interior Sindh – continue to struggle with losses exceeding 30% and recovery rates often below 80%. For instance, PESCO’s receivables have grown to over Rs.246 billion due to non-payment, weak enforcement, and security issues that make on-ground recovery difficult.
The uniform tariff and cross-subsidization policy further aggravate this imbalance. Under the national tariff equalization mechanism, more efficient DISCOs like IESCO, LESCO, and FESCO indirectly cover the losses of underperforming ones through higher surcharges and adjustments in their cost of supply. NEPRA’s recent reports estimate that this cross-subsidy adds an additional Rs. 200-250 billion per year to the financial burden borne by customers in better-performing regions, effectively disincentivizing good performance and encouraging a status quo of inefficiency in the worst performers.
Consequently, the government’s plan to privatize the more efficient DISCOs first – including IESCO, GEPCO, and FESCO – while politically logical, also raises questions. Unless the cross-subsidy structure and governance failures in weaker regions are addressed, privatization risks repeating the same pattern where rational market-based solutions collide with deeply embedded institutional and socio-cultural constraints. This is why Pakistan’s power sector remains a clear example of how rational policies can fail in irrational public systems: new models and structures only work when the underlying governance, political, and operational realities also evolve.
