Weak operational and governance performance by Pakistan’s power distribution companies (DISCOs) added approximately Rs397 billion to the country’s circular debt during the financial year 2024-25 (FY25), according to the National Electric Power Regulatory Authority’s (NEPRA) State of the Industry Report 2025 released on Friday.
The regulator noted that while some progress was made on the generation side of the power sector, deep-rooted inefficiencies at the distribution level continued to undermine financial sustainability. NEPRA said efforts to rationalise and retire comparatively high-cost and underutilised generation capacity, along with rigorous negotiations with Independent Power Producers (IPPs) to reduce tariffs, represented an important milestone. However, these gains were largely offset by persistent weaknesses in distribution companies.
According to the report, weak DISCO performance remained a major driver of circular debt accumulation. NEPRA highlighted that load-shedding based on high Aggregate Technical and Commercial (AT&C) losses was both unlawful and inequitable, as it penalised paying consumers while underutilising available generation capacity operating under take-or-pay contracts. This practice, the regulator warned, further deepened inefficiencies across the power sector.
NEPRA observed that the sector is at an inflection point, with the traditional era of electricity scarcity coming to an end. However, it cautioned that the emerging environment of surplus capacity, structural cost pressures, and shifting demand patterns could prove even more complex to manage if governance and operational weaknesses persist.
Operational inefficiencies were reported across all DISCOs, including K-Electric (KE). Common issues include delays in new connections, meter replacements, and approvals for net-metering. Overbilling practices, particularly detection bills issued without due process, along with frequent inflated billing complaints, were cited as major factors eroding consumer trust. NEPRA noted that despite multiple structural and policy-level interventions, overall progress remained limited and insufficient.
On the supply side, total installed generation capacity declined to 41,121 megawatts at the end of FY25 from 45,888MW at the end of FY24. The reduction was primarily due to the retirement or decommissioning of inefficient power plants as part of efforts to cut expensive take-or-pay generation capacity.
The regulator also raised concerns over the performance of the National Grid Company of Pakistan Limited (NGC), stating that weaknesses in the transmission system were increasing overall generation costs. According to NEPRA, multiple transmission constraints are forcing power plants to operate outside the economic merit order, while delays and cost overruns remain common across transmission projects. The delay in completing key projects, including the interconnection between the K-Electric and NGC systems and the Lahore North Grid, was highlighted as particularly damaging to system efficiency.
NEPRA further noted that most DISCOs continue to operate as public sector entities owned by the federal government, despite being incorporated as companies more than two decades ago. The report questioned whether the DISCOs themselves were unwilling to function independently or whether their owners were reluctant to grant them true operational autonomy. Increasing centralised control, previously under PEPCO and now under the Power Planning and Monitoring Company, was cited as a factor weakening accountability.
The regulator expressed concern over the limited role played by Boards of Directors in improving financial health and governance. NEPRA said there was little accountability for board members, chief executives, and senior officials, allowing inefficiencies and poor performance to persist without deterrence.
On performance indicators, average transmission and distribution losses stood at 17.4% in FY25, down from 18.31% a year earlier. However, all entities remained above NEPRA’s allowed benchmark of 11.43%. Recoveries also weakened, with DISCOs recording a shortfall of Rs132.5 billion, while KE alone failed to recover Rs74.6 billion. NEPRA noted that KE absorbs the financial impact of its losses due to its private ownership structure, strengthening the case for privatisation of selected DISCOs including IESCO, GEPCO, and FESCO.
The report identified KE, PESCO, HESCO, SEPCO, and QESCO as the poorest performers, citing excessive losses, weak recoveries, prolonged load-shedding, and high consumer dissatisfaction. PESCO alone imposed a fiscal cost of Rs87.5 billion, while QESCO and SEPCO contributed losses of Rs52.4 billion and Rs36.0 billion, respectively. In contrast, MEPCO emerged as the strongest performer on recoveries, followed by GEPCO and LESCO.
NEPRA concluded that governance reform remains the most critical challenge confronting Pakistan’s power distribution sector, warning that without decisive action, circular debt pressures will continue to undermine the energy sector’s sustainability.
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