ISLAMABAD: Pakistan plans to accelerate the privatization of nine power distribution companies (DISCOs) during 2027 as part of sweeping energy-sector reforms aimed at reducing electricity tariffs, attracting private investment, improving consumer services and addressing structural weaknesses that have become a national security concern.
Prime Minister’s Adviser on Privatization and Chairman of the Privatization Commission Muhammad Ali, in a detailed interview, said the government was developing a comprehensive reform framework to introduce competition into electricity supply while ensuring regulatory certainty, investor protection and affordable power for domestic and industrial consumers.
He described the privatization of electricity distribution companies as one of the most important economic reforms facing Pakistan, warning that failure to address high energy costs could further weaken industrial competitiveness, discourage investment and accelerate the departure of consumers from the national grid.
First three DISCOs targeted for early 2027
Muhammad Ali disclosed that the government was initially proceeding with the privatization of Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO).
Due diligence is already under way, while discussions with prospective investors have highlighted the need for additional time to evaluate the complex transactions.
The government had originally targeted bidding in December 2026, but the process may now extend into the first quarter of 2027.
“Our aim is to conduct the bidding for these three in the first quarter of next year,” he said.
Work has also begun on Hyderabad and Sukkur electricity distribution companies, with the government aiming to advance their privatization during the second quarter of 2027.
These companies present additional challenges because of high distribution losses and weak bill recoveries.
Muhammad Ali said the government had initially considered long-term outsourcing arrangements for these utilities, but investors had expressed limited interest in that model.
Meanwhile, preparatory work has started on distribution companies serving Lahore, Multan, Peshawar and Hazara. Advisers will be appointed for these transactions, which are targeted for the second half of 2027.
He acknowledged that the timetable was ambitious but expressed confidence that significant progress could be achieved.
Energy crisis becomes national security concern
The adviser warned that Pakistan’s persistent energy-sector problems were no longer merely financial or administrative issues.
“If we do not resolve the problems of our power sector and the energy sector as a whole, it is clear that this has now become a national security issue for the country,” he said.
He stressed that industrial development, employment generation and export growth depended heavily on access to competitively priced electricity.
Pakistan’s exports remain around $30 billion despite various refinancing facilities, tax incentives and other support measures, he observed.
According to Muhammad Ali, high production costs, particularly electricity expenses, continue to undermine the ability of Pakistani industries to compete internationally.
He said the government must adopt a fundamentally different approach to managing the energy sector rather than continuing policies that have failed to deliver sustainable improvements.
Government seeks competitive electricity tariffs
Explaining the proposed reforms, Muhammad Ali said the government wanted to transform Pakistan’s electricity market by introducing competition among power suppliers.
Under the proposed system, consumers would eventually be able to choose among competing electricity suppliers offering different tariff packages.
He explained that electricity distribution infrastructure would remain a regulated business because transmission and distribution networks function as natural monopolies.
However, the purchase and sale of electricity could operate through a competitive market.
The government is examining a framework under which privatized DISCOs would serve as suppliers of last resort, ensuring electricity availability to consumers unable to obtain supply from competitive providers.
A uniform tariff would continue to apply to the supplier of last resort, while competitive suppliers would be permitted to offer different prices.
Muhammad Ali said the objective was to gradually move away from the existing uniform tariff system in the competitive market.
He argued that competition was essential to reducing electricity prices and preventing consumers from abandoning the national grid in favour of cheaper solar, wind and battery-storage systems.
Rs1.7 trillion capacity payments pose major challenge
The adviser identified Pakistan’s existing power-generation obligations as one of the biggest obstacles to establishing a competitive electricity market.
He said the country had approximately 40,000 megawatts of contracted generation capacity, carrying annual capacity-payment obligations of around Rs1.7 trillion.
Despite this capacity, peak electricity demand reaches approximately 25,000 megawatts, while average sales are substantially lower.
He explained that introducing additional electricity generation without addressing existing contractual obligations could increase costs for consumers remaining within the national system.
As customers shift towards alternative energy sources, the fixed capacity-payment burden is distributed among fewer consumers, increasing the per-unit cost of electricity.
Muhammad Ali said the government was therefore considering a reform model under which existing electricity supply contracts and customers would be transferred together to competitive private-sector suppliers.
The proposal seeks to ensure that private suppliers assume corresponding capacity-payment obligations rather than leaving those liabilities entirely with the government.
He said the framework would also allow suppliers to introduce cheaper generation, renewable energy and storage technologies while offering competitive tariff packages.
K-Electric tariff dispute raises investor concerns
Muhammad Ali acknowledged that prospective investors had raised serious concerns about regulatory uncertainty, particularly following recent tariff developments involving K-Electric.
“Every investor has raised this issue,” he said.
He explained that investors considering electricity distribution businesses required long-term certainty because their investments could extend over periods of 20 to 50 years.
The adviser emphasized that Pakistan needed an independent, professionally competent and adequately empowered electricity regulator.
He suggested that NEPRA’s governance framework should be reviewed to ensure appropriate technical, financial, legal and economic expertise while maintaining provincial representation.
Regarding K-Electric, he said the recent tariff controversy involved complex regulatory and shareholder issues.
He expressed hope that a solution would emerge but clarified that decisions concerning K-Electric’s tariff fell within the jurisdiction of the relevant authorities and the Power Division.
To address investor concerns in upcoming DISCO transactions, the Privatization Commission is proposing that investment plans and multi-year tariffs be approved before bidding.
Under the proposed arrangement, DISCO investment plans would undergo examination by transaction advisers, including international specialists, before being submitted to NEPRA for final approval.
The government wants a seven-year framework to provide greater regulatory certainty.
Investors to receive rupee-based returns
Muhammad Ali ruled out dollar-denominated returns for prospective DISCO investors, saying the government intended to offer returns in Pakistani rupees.
He disclosed that some Turkish investors had requested dollar-linked returns during discussions, but the government maintained its position.
However, he said rupee-based returns should account for inflation and prevailing financial conditions.
The proposed mechanism would follow established regulatory principles, including the risk-free rate, risk premium and other relevant factors.
He stressed that investors should receive reasonable returns reflecting their risks without imposing excessive costs on consumers.
The government also intends to introduce performance-based incentives.
Investors who reduce electricity losses, improve bill recoveries and increase operational efficiency could receive financial rewards, with part of the resulting benefits passed on to consumers.
Smart meters, uninterrupted supply and better services
The adviser said privatization would be linked to measurable improvements in electricity distribution services.
Private operators would be required to comply with regulatory benchmarks covering supply reliability, electricity interruptions, distribution losses and service quality.
The government also intends to encourage smart-meter installation, improved technology, better load management and more reliable electricity supply.
Muhammad Ali said private investors would have stronger financial incentives to address inefficiencies because operational losses would directly affect their returns.
He emphasized that consumers must benefit from the reforms through improved services and, ultimately, lower electricity costs.
Employees to receive protection
Addressing concerns about job security, Muhammad Ali said the government would seek contractual safeguards for employees of privatized distribution companies.
He explained that investors would be required to provide protection against dismissals or adverse changes in employment conditions for an agreed period.
The government would also examine employee benefits, including existing arrangements involving free electricity units.
He maintained that privatized electricity businesses would continue to require experienced technical, operational and administrative staff.
Reform paper expected by mid-November
Muhammad Ali revealed that the Privatization Commission had prepared a comprehensive reform paper following approximately six months of work.
The document addresses electricity tariffs, investment structures, permissible business activities, market competition and the future operating framework for privatized DISCOs.
The proposals have been shared with the Power Division and prequalified investors, while further consultations are planned.
Following consideration by the steering committee constituted by the Prime Minister and review at the government level, the Commission intends to release the paper for public consultation by mid-November 2026.
The adviser said the government welcomed constructive criticism and suggestions before finalizing the proposed reforms.
IPP negotiations to deliver substantial savings
Discussing earlier negotiations with independent power producers (IPPs), Muhammad Ali credited domestic investors, business groups and government institutions for cooperating in efforts to reduce the power sector’s financial burden.
The interview referred to estimated savings of approximately Rs4.3 trillion over the coming years from revised power agreements.
Muhammad Ali said some power plants had been shut down while agreements with others were renegotiated.
He described the process as a collective effort involving the Power Division, NEPRA, SECP, CPPA, PPIB and senior government officials.
He particularly acknowledged the contributions of the energy-sector leadership and domestic investors who supported the negotiations.
PSO and Sui gas companies also under consideration
Beyond electricity distribution, Muhammad Ali confirmed that the government was examining privatization options for Pakistan State Oil (PSO), Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC).
He said discussions were under way with Petroleum Minister Ali Pervaiz Malik regarding the future structure of the gas utilities.
The government is also reviewing recommendations developed with the involvement of the World Bank.
In PSO’s case, the adviser suggested that strategic operations could remain under government control while non-strategic commercial activities might be separated for privatization.
He emphasized that the proposals remained under examination and that the appropriate structure would have to be determined.
Islamabad, Karachi and Lahore airports included in outsourcing plans
The adviser also outlined progress on plans to outsource operations at three major airports.
He clarified that Islamabad, Karachi and Lahore airports would not be sold but would instead be placed under long-term outsourcing arrangements.
The Islamabad airport transaction is at a relatively advanced stage, while advisers have been selected for Karachi and Lahore airports.
He said substantial investment and expansion would be required at the airports, with investment exceeding $500 million anticipated in the relevant projects.
Banks and insurance companies on privatization agenda
Muhammad Ali said the Privatization Commission was also working on transactions involving House Building Finance Corporation and Zarai Taraqiati Bank Limited.
In the insurance sector, preparatory work has started on State Life Insurance Corporation and Pakistan Reinsurance Company.
He confirmed that discussions with Etisalat were continuing over the longstanding outstanding payment associated with the privatization of Pakistan Telecommunication Company Limited (PTCL).
The government remained committed to resolving the dispute, although differences between the parties had delayed a settlement.
Government to support private airlines in aircraft financing
Responding to questions about possible financing arrangements for aircraft purchases by Pakistan International Airlines, Muhammad Ali defended the government’s role in facilitating commercial financing opportunities.
He said supporting Pakistani businesses in obtaining international financing was a legitimate responsibility of government officials, regardless of whether the companies were publicly or privately owned.
He maintained that similar assistance could be extended to other Pakistani airlines seeking financing for aircraft purchases.
Privatization must deliver lasting economic reform
Muhammad Ali emphasized that the government did not view privatization merely as a means of transferring public assets into private ownership.
Instead, he said, the objective was to use private investment and competition to address longstanding structural problems, improve operational efficiency and strengthen economic growth.
He warned that Pakistan could not afford further delays in reforming electricity distribution, particularly as industries and households increasingly adopted alternative energy sources.
The success of the privatization programme, he indicated, would depend on creating a transparent regulatory framework, protecting consumers and employees, ensuring fair investor returns and establishing genuine competition in the electricity market.
With several major transactions targeted for 2027, the government faces the challenge of translating its ambitious privatization roadmap into reforms capable of delivering affordable electricity, improved services and sustainable economic growth.