Pakistan's Power Sector Reform Struggles with DISCO Privatization

Pakistan has been actively working on reforming its power sector to promote liberalization and competition. One of the key areas of focus has been the privatization of Distribution Companies (DISCOs), which has been met with challenges due to regulatory decisions and systemic issues within the industry.

Recent changes in the Nepra Act have mandated the separation of DISCOs into distribution and supply entities. The distribution side is responsible for network maintenance and efficiency, while the supply side handles billing, complaints, and power procurement.

Despite the legal unbundling of Supply and Network businesses, Nepra treats them as a single entity when setting tariffs. This has led to debates over retail margins, with Nepra denying them to DISCOs like IESCO, citing that network operation margins should be sufficient.

However, the Supply business faces challenges in bill recovery without adequate allowances for cost recovery or margins. This has deterred potential investors from entering the sector, as the inefficiencies of DISCOs have resulted in significant losses for the government.

To attract private investment and improve sector performance, realistic performance targets, allowances, and retail margins need to be factored into tariffs. The urgency to reform the sector is critical, as DISCO losses are projected to escalate if left unaddressed.

The privatization of DISCOs in Pakistan aims to drive efficiency and revenue collection in the power sector. By implementing necessary reforms and addressing existing challenges, Pakistan can pave the way for a more competitive and sustainable power industry.