The World Bank is collaborating with the Pakistani government to encourage private sector investment in the country’s power distribution sector, starting with the best-performing distribution companies (Discos). This initiative aims to pave the way for private sector participation in under-performing Discos, despite the significant financial challenges they face.
An Asian Development Bank (ADB) report highlights the need to address underlying issues within Discos to attract private investment and ensure the success of private sector participation. The government has explored various options for private sector involvement, but these efforts have faced opposition from stakeholders concerned about job losses, increased tariffs, and potential loss of control over a critical sector. Potential investors have also expressed concerns about regulatory clarity, tariff mechanisms, and the legal environment.
Most Discos in Pakistan are running significant financial deficits, with nearly all reporting losses in FY23. High losses and poor collection efficiency for supplied electricity drive these financial challenges. In FY23, several Discos reported collection rates above 90%, while others demonstrated alarmingly low recovery rates, including QESCO (36.9%), SEPCO (66.5%), and the Hyderabad Electric Supply Company (74.4%).
The distribution sector also faces challenges such as high power purchasing costs, aging infrastructure, and weak governance, leading to substantial financial losses and growing circular debt. In FY23, Discos reported combined transmission and distribution losses of 16.5%, compared to 10.3% in Bangladesh, 12.7% in Nepal, and the global average of 8%. These losses added Rs160.4 billion to circular debt in FY23, with the largest contributions from the Peshawar Electric Supply Company, the Lahore Electric Supply Company, the Quetta Electric Supply Company, and the Sukkur Electric Power Company.
The mounting financial pressures and operational inefficiencies exacerbate circular debt and undermine the energy sector’s financial sustainability. The success of this initiative could significantly improve the financial health and efficiency of Pakistan’s power distribution sector.