Pakistan needs integrated planning to reduce power sector losses: study

KARACHI: Pakistan’s electricity distribution system requires integrated planning and investment to reduce transmission and distribution (T&D) losses and ensure the smooth supply of cheaper electricity to consumers, according to a recent study.

The study, conducted by the Pakistan Credit Rating Agency (PACRA), said that while the country’s electricity distribution capacity is sufficient to meet demand, strengthening and expanding the T&D network is crucial for the optimal utilisation of this capacity.

It called for immediate measures to integrate planning and investment in the national grid system to eliminate T&D constraints and facilitate the efficient transmission of low-cost electricity to consumers.

The report highlighted that recent initiatives, such as the shift to solar energy, are expected to reduce losses and enhance energy independence, particularly for rural consumers. Additionally, disaggregating national uniform tariffs and allowing well-managed power distribution companies (Discos) to move towards privatisation would improve efficiency and minimise T&D losses.

Furthermore, since electricity subsidies are borne by the federal government, provincial governments lack the incentive to curb power theft. As a result, the study emphasised the need for urgent structural and infrastructural reforms.

The report noted that Pakistan’s overall power consumption declined by 2.9 per cent year-on-year (YoY) in FY24, representing 86.2 per cent of the total electricity generated during the same period. The sector continues to face persistent challenges, including high T&D losses and inadequate bill recovery by Discos.

Governance issues have significantly contributed to mounting circular debt, which reached Rs2.4 trillion in FY24 -- an increase of Rs100 billion YoY -- accounting for 2.3 per cent of the country’s GDP. Payables to independent power producers (IPPs) and Power Holding Private Limited (PHPL) made up 96 per cent of the total circular debt stock in FY24. As of the end of November 2024, the stock had declined marginally by 0.5 per cent compared to June 2024.

The report further revealed that T&D losses for Discos and K-Electric (KE) stood at 20.1 per cent and 16 per cent, respectively, in FY24, resulting in a financial impact of Rs276.3 billion -- an increase of 72.1 per cent YoY.

While the recovery rate against billed amounts stood at 92.6 per cent, down 0.7 per cent YoY, Disco receivables surged to Rs2,034 billion, reflecting a 17.7 per cent YoY increase.

During FY24, National Transmission and Despatch Company (NTDC) saw its gross and operating profit margin decline to 37 per cent, while its net profit margin fell to 11 per cent. Meanwhile, the average gross profit margin for Discos remained unchanged at 9.0 per cent compared to the previous year, despite a 31 per cent YoY rise in net revenue. However, the average net profit margin declined to -6.1 per cent.

Alongside the drop in electricity consumption, sector players faced high energy and financing costs due to overall inflationary pressures and the State Bank of Pakistan’s hawkish monetary policy stance.

The report stated that in FY24, the household sector accounted for 86.8 per cent of total electricity connections in the country, followed by commercial and industrial users. In terms of consumption, households used the highest share at 46 per cent, followed by the industrial sector at 23 per cent.