Losses of 15 SOEs surge to whopping Rs5.9 trillion

ISLAMABAD: Pakistan’s state-owned enterprises (SOEs) have incurred significant losses, totaling Rs5.9 trillion. In the first half of FY2025, losses increased by Rs0.345 trillion. Additionally, pension liabilities of 15 SOEs have reached Rs1.7 trillion.

The circular debt issue has severely affected the financial health of strong state-owned entities like GHPL, OGDCL, PSO and PPL. Inter-company debt has reached Rs4.9 trillion, distorting balance sheets and hindering operational efficiency, with the power sector accounting for Rs2.4 trillion of this amount.

According to the bi-annual report of SOEs released on Friday, Pakistan’s state-owned enterprises (SOEs) are facing significant financial challenges. The National Highways Authority (NHA) posted the largest loss at Rs153.3 billion, bringing its total accumulated losses to Rs1,953.4 billion due to an unsustainable toll revenue model. Quetta Electric Supply Company (QESCO) and Sukkur Electric Power Company (SEPCO) also reported substantial losses of Rs58.1 billion and Rs29.6 billion, respectively, with accumulated losses of Rs770.6 billion and Rs473 billion, highlighting inefficiencies in the power distribution sector. The report has been released as part of IMF conditions. Other notable contributors to the fiscal drain included Pakistan Railways PKR 6.7 billion loss (PKR 26.5 billion accumulated losses), Peshawar Electric Supply Company (PESCO) with PKR 19.7 billion loss (PKR 684.9 billion accumulated), and Pakistan Steel Mills (PSM) reporting PKR 15.6 billion in losses, raising its accumulated shortfall to PKR 255.8 billion. Additionally, Pakistan Telecommunication Company Limited (PTCL) posted PKR 7.2 billion in losses (accumulated PKR 43.6 billion), Pakistan Post PKR 6.3 billion (PKR 93.1 billion accumulated), and Utility Stores Corporation PKR 4.1 billion (PKR 15.5 billion accumulated), revealing persistent operational and structural issues.

Among power generation entities, the GENCOs (I-IV) together posted over PKR 8.3 billion in combined losses: GENCO-II (Guddu) at PKR 3.8 billion, GENCO-III (Muzaffargarh) at PKR 3.1 billion and GENCO-I (Jamshoro) at PKR 1.3 billion. Neelum Jhelum Hydro Power Company posted PKR 2.3 billion in losses (accumulated PKR 58.2 billion). Collectively, “All Other” loss-making SOEs added PKR 2.7 billion to the burden, with their cumulative losses totaling PKR 1,285.96 billion, bringing the total accumulated losses of these 15+ entities to Rs5,893.2 billion—a stark indicator of deep-rooted financial inefficiencies and the urgent need for turnaround strategies.

The financial performance of Pakistan’s power distribution companies (DISCOs) over the six-month period reveals a deeply concerning trend of escalating losses, significantly amplified once government subsidies are adjusted out of revenues. The total core operating actual loss for the period stands at Rs 283.7 billion, with notable contributors including Quetta Electric Supply Company Limited (Rs 92.65 billion loss), Peshawar Electric Supply Company Limited (Rs 53.68 billion), and Hyderabad Electric Supply Company Limited (Rs 39.63 billion). Even DISCOs with positive EBIT before subsidy removal—such as Multan (EBIT Rs 8.4 billion), Faisalabad (Rs 52 billion), and Gujranwala (Rs 20.9 billion)—turned loss-making after adjusting for subsidies, incurring actual losses of Rs 35.17 billion, Rs 13.12 billion, and Rs 7.32 billion, respectively. Lahore, Islamabad, Sukkur, and Tribal DISCOs also showed EBIT gains or marginal losses but failed to stay profitable post-adjustments. Particularly alarming is Quetta DISCO, with an EBIT loss of Rs 60.36 billion and additional subsidies of Rs 32.30 billion still leaving a staggering net loss.

Compounding these financial losses is the persistent 20pc technical and commercial loss of electricity units, pointing to deep-rooted inefficiencies in billing, recovery, and transmission infrastructure. These structural flaws push the 6-month average sectoral loss close to Rs 300 billion, which extrapolates to Rs 600 billion annually, underscoring an urgent imperative for transformational reforms. Without rapid overhaul—targeting governance, technology, privatization or concession models, and tariff realignment—the fiscal hemorrhaging will not only burden the national exchequer but also paralyze broader energy sector recovery and investment.

Government-issued guarantees reached Rs2,245 billion, reflecting an increase from the previous Rs1,400 billion, primarily due to the inclusion of self-liquidating guarantees extended to PASSCO and Trading Corporation of Pakistan (TCP) in the total stock. However, the current valuation methodology for these guarantees requires significant enhancement to align with international best practices. This includes the adoption of advanced financial models such as option pricing techniques, credit risk models, contingent claims analysis, and Monte Carlo simulations. Key variables—such as Probability of Default (PD), Exposure at Risk (EAR), and Loss Given Default (LGD)—should be integrated into the valuation framework to ensure a more accurate assessment of fiscal risk. Efforts are currently underway to develop and implement these models, which will significantly strengthen the government’s risk management framework for contingent liabilities.

Pakistan’s profit-making State-Owned Enterprises (SOEs) posted a cumulative profit of Rs457.2 billion. The Oil and Gas Development Company Limited (OGDCL) was the highest contributor with PKR 82.5 billion, followed by Faisalabad Electric Supply Company Limited (FESCO) at PKR 53.5 billion, whose performance was significantly boosted by subsidies of PKR 38.9 billion and other income of PKR 5.8 billion. Pakistan Petroleum Limited (PPL) earned PKR 49.9 billion, while National Power Parks Management Company (NPPMCL) reported a strong PKR 37.4 billion.

The total outstanding debt of State-Owned Enterprises (SOEs) has reached Rs8.831 trillion, inclusive of accrued interest and rollover costs. This comprises Rs1,681 billion in Cash Development Loans (CDLs) and Rs1,842 billion in Foreign Relent Loans (FRLs) provided by the Government of Pakistan. In addition, SOEs have borrowed Rs2,808 billion from private sector banks and through bonds/Sukuks, alongside Rs497 billion in other interest-bearing liabilities. Notably, the cumulative rollover costs and accrued interest associated with these borrowings amount to Rs2,000 billion. This growing debt burden highlights increasing financial stress within the SOE sector and underscores the need for prudent debt management and restructuring measures.

Pakistan’s SOEs face significant credit, market, and operational risks across sectors like Oil & Gas, Power, Infrastructure, ICT, Financial Institutions, Insurance, Trading, and Manufacturing. Their growing dependence on government guarantees, subsidies, circular debt, and poor revenue recovery heightens fiscal vulnerabilities. Rising debt due to operational inefficiencies, market fluctuations, and outdated infrastructure exposes the government to increasing contingent liabilities, jeopardizing financial stability and economic growth. Credit risks are most evident as many SOEs rely on sovereign backing, with delayed receivables forcing expensive borrowing, putting immense strain on the government’s fiscal space. In the oil sector, companies like OGDCL, PPL and PARCO are trapped in the circular debt cycle, facing major credit risks due to delayed payments from downstream entities like PSO & power sector which is entrenched within this. These risks reduce liquidity, suppress free cash flow and constrain operational investments.

Market risks such as PKR/USD volatility erode margins, while global oil price fluctuations disrupt revenue streams. The sector lacks robust hedging, making cash flows unpredictable. Operational risks, including outdated brownfield infrastructure, high working capital investments, project delays and security issues in Balochistan and KPK, further destabilize operations, the report added.