The power sector puzzle

One of the most persistent debates in Pakistan’s economic policymaking is whether the state should divest itself of commercial responsibilities and allow private actors to take over, or whether it must remain a principal provider of essential services. This conversation has gained renewed urgency with the government’s recent proposal to privatise three power distribution companies (Discos). While some view this as a necessary step towards reform and efficiency, others – including members of the National Assembly Standing Committee on Economic Affairs Division – have expressed deep reservations about both the intent and the strategy behind this move. Their concern is not unfounded. The plan to privatise only those DISCOs with relatively low transmission and distribution losses raises questions: is the state trying to offload only the profitable or fixable assets to private players, leaving behind the more problematic ones? If so, that is not reform. It is a classic case of cherry-picking that risks undermining the broader structural reform that the power sector so desperately needs.

For decades, DISCOs in Pakistan have epitomised inefficiency, mismanagement and corruption. Loadshedding may have reduced thanks to increased generation capacity, but the sector remains entangled in a web of circular debt, which stands at Rs2.4 trillion – the single largest contributor to the total Rs4.9 trillion debt of state-owned enterprises (SOEs). The latest audit by the auditor general reveals overbilling of Rs244 billion by eight DISCOs, allegedly to conceal theft, inefficiency and line losses. The fact is that these companies have effectively defrauded millions of consumers already struggling under the weight of inflation and diminishing purchasing power. But does privatisation offer a viable solution? The case of at least one private power utility offers a cautionary tale. The strategy of collective punishment – where entire areas are blacked out to pressure payment from defaulters – may be profitable, but is ethically and practically indefensible in a country where electricity is a basic need. The state cannot abandon its role as a social guarantor. Empathy, however limited, must be built into the system – and the private sector, by design, does not offer it. Yet, this does not mean the state can afford to keep running bloated, dysfunctional entities indefinitely. It must first fix what is broken. That includes plugging theft, improving billing systems, cracking down on corrupt staff and enforcing transparency. State-run utilities must be held to performance benchmarks and leadership within these SOEs must be made accountable to both parliament and the people.

Privatisation, if pursued, should not be hasty or selective. It must come with a regulatory framework that protects consumers from exploitation, ensures affordability and penalises predatory practices. The power sector cannot become another arena where ordinary citizens bear the cost of elite inefficiency and political expediency. Pakistan is already experiencing the impacts of a warming planet in the form of frequent heatwaves, rising energy demand and an infrastructure under stress. These pressures will only grow. Energy, like food and water, must be treated as a public good and any reform – whether through state control or private participation – must begin from this moral position. Perhaps a balance can be found: reform the SOEs, enforce accountability and only then consider inviting responsible private participation under a robust regulatory regime.