Pakistan power sector set to undergo major overhaul

ISLAMABAD: Pakistan’s long-standing energy woes are set to see transformative reforms, with an ambitious agenda aimed at addressing inefficiency, costly power generation, and poor planning in the power sector, said Power Minister Awais Ahmad Khan Leghari.

Speaking at a seminar hosted by the British High Commission, Leghari outlined bold steps, including the introduction of the Independent System Market Operator (ISMO) and its operationalisation in March 2025 and the privatisation of distribution companies (Discos), aimed at reshaping the sector into a competitive, transparent market.

During the seminar titled “Governance Reforms After the 18th Amendment” organised by the British High Commission here, Leghari emphasised the critical role of the United Kingdom as a key development partner for Pakistan.

Leghari acknowledged the challenges posed by economic pressures on the energy sector, stating, “Reforms in the energy sector face significant hurdles due to the current economic situation.”

He stressed the need for reforms in the social protection system to enhance transparency and inclusion, which would empower communities and improve governance. “Local governments are the foundation of democracy, but they lack constitutional protection in Pakistan,” he noted.

The federal minister highlighted key issues facing Pakistan’s economy, including a growing population, health crises, water shortages, and deficiencies in the education system. “We need investment in water storage and distribution systems,” Leghari added.

Leghari criticised the historical lack of strategic planning in the power sector, which has led to the country’s reliance on expensive electricity generation. “Pakistan has never invested in power generation based on a least-cost methodology. Instead, we’ve consistently bought costly power with opaque pricing models, and we’re still dealing with the fallout from past IPP contracts,” he said.

Leghari highlighted the upcoming addition of 17,000MW to Pakistan’s energy portfolio, yet only 87MW meets the required least-cost criteria. “Every other MW being added is a violation of the least-cost methodology,” he stated, adding that the government is currently reviewing the Indicative Generation Capacity Expansion Plan (IGCEP), with the aim of approving a new 10-year plan within a month.

The power minister also expressed concerns over the country’s net-metering system, which, though adding 1.2GW to the grid, has placed an undue financial burden on the system. “Only 100,000 affluent individuals benefit from net metering, but the entire population bears the cost. The system needs to be rationalised, as the country simply cannot afford the current model,” he said.

In addressing the inefficiencies of Pakistan’s National Transmission and Dispatch Company (NTDC), Leghari described it as “one of the most inefficient companies Pakistan has ever had,” pointing to years of delays in national transmission projects. He confirmed that plans are underway to split NTDC into three companies to improve its efficiency.

Leghari also revealed that a major reform in the energy sector, the Independent System Market Operator (ISMO), through the restructuring of NTDC has been approved and is set to become operational in March 2025. This will pave the way for bilateral contracts between power buyers and sellers, with the government no longer serving as the sole purchaser of electricity.

“This entity will be responsible for creating an efficient, comprehensive, and transparent competitive electricity market for consumers,” he explained.

The privatisation of distribution companies, or Discos, is another key element of the reform agenda. Leghari, who is in charge of 11 distribution companies with over 200,000 employees, is confident that the privatisation will replicate the success seen in the telecom sector.

“We have brought in good professional boards for Discos, for the first time in country’s history without any political or judicial or establishment or bureaucratic intervention. And hence what results we got out of it. We had a review with the IMF only yesterday or the day before, and our first quarter’s circular debt management plan targets, we did Rs170 billion better than what was actually budgeted,” he said.