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Business Recorder

Power sector reforms or policy whiplash?

Pakistan's power sector appears to be caught between two conflicting impulses. On one hand, the government is pushing forward with a bold plan to privatize multiple electricity distribution companies (DISCOs), touting it as part of a long-term market liberalization strategy. On the other, it continues to multiply state-owned enterprises (SOEs), such as the newly-formed Hazara Electric Supply Company (HAZESCO), raising questions about whether there is genuine reform underway or merely an administrative reshuffling with little substantive change. In May 2025, the government moved to privatize three major Discos — IESCO, FESCO, and GEPCO — as part of its Phase I privatization program. These are some of the relatively better-performing utilities, which suggests a revenue-maximizing strategy rather than a structural reform approach. Phase II is expected to include LESCO, MEPCO, and – ironically — HAZESCO, a company only just brought into existence. This apparent contradiction lies at the heart of the confusion: while some entities are being handed off to the private sector, new SOEs are simultaneously being created, staffed, and resourced from scratch. Is this a strategy or a contradiction? HAZESCO was officially incorporated in October 2023 and granted NEPRA's distribution and supply licences in May 2025. It was carved out from PESCO to manage the electricity needs of the Hazara Division, ostensibly to improve regional accountability and operational efficiency. At the same time, however, the government has committed to eventually privatize HAZESCO, making it the rare case of an SOE being born with an expiry date. Some officials argue that this reflects a phased and modular reform strategy—disaggregating large utilities into manageable, region-specific companies that can later be offered to the private sector in more efficient, accountable forms. Supporters of this approach claim it aligns with the rollout of Pakistan's Competitive Trading Bilateral Contract Market (CTBCM), a reform being spearheaded by NEPRA. The CTBCM seeks to move Pakistan away from its legacy single-buyer model, where a centralized agency purchases all electricity, toward a decentralized system where generators and consumers can contract bilaterally. For this model to work, a clear separation between various entities—transmission, generation, distribution, and system operation—is necessary. In this context, the creation of regionally focused DISCOs like HAZESCO could be seen as laying the groundwork for a competitive marketplace. But not everyone is convinced. Critics see the proliferation of new SOEs, while existing ones are hemorrhaging losses, as a case of institutional redundancy. The power sector already comprises more than twenty state-owned companies, including four GENCOs, ten DISCOs, NTDC, CPPA-G, PITC, and various regulatory and project management bodies. The recent cabinet-approved unbundling of NTDC into three new entities—ISMO, NGCP, and EIDMC—further adds to the complexity. Layering new organizations atop a system already riddled with inefficiencies risks making coordination more difficult, not less. The concern is that instead of streamlining operations, the government may be creating more bureaucratic silos and administrative burdens. The broader power sector context makes this institutional expansion even more concerning. Electricity tariffs have reached record highs, partly due to rising capacity payments and a ballooning circular debt that now stands in the trillions of rupees. Both industrial and domestic consumers are struggling under this weight. High tariffs are stifling economic competitiveness, discouraging investment, and driving public frustration. While the government pursues structural reform, consumers see only mounting bills and persistent outages. Some observers argue that the contradiction is only apparent, not real. According to them, Pakistan is pursuing a dual-track strategy: restructuring and strengthening certain entities before privatization, while simultaneously creating a regulatory and market architecture (like CTBCM) to support a competitive power market ostensibly breaking away from the malaise of the single buyer model. This, they argue, is a globally practiced approach—India, for example, unbundled its electricity boards into state-wise distribution companies before gradually introducing private participation. In theory, a similar approach could work in Pakistan if implemented with transparency, discipline, and a clear roadmap. The problem, however, lies in execution. The government has yet to establish clear performance benchmarks for these new and existing companies, nor has it developed credible turnaround plans for those that are bleeding financially. In the absence of strong corporate governance and independent regulatory enforcement, creating new SOEs risks simply replicating the same inefficiencies under different names. Meanwhile, consumers are bearing the brunt of indecision, inefficiency, and inflated costs. Pakistan is not necessarily moving in circles, but the direction of movement is far from linear. The country is experimenting with a modular reform model: breaking down existing monopolies, piloting improved regional structures like HAZESCO, and paving the way for their eventual privatization within a competitive market structure. If executed well, this could lead to a leaner, more efficient, and more accountable power sector. But if the contradictions are not addressed and reforms are driven more by bureaucratic impulses than market logic, the country may end up with a more fragmented and costly system—without any of the promised gains of competition or efficiency. Whether this is method or madness will become clearer in the next 12 to 24 months. But one thing is certain: the stakes are rising along with the electricity bills, and Pakistan cannot afford to get this transition wrong. Copyright Business Recorder, 2025