Pakistan’s electricity crisis refuses to yield to repeated rounds of reform because the debate itself remains misplaced. The latest assessment by the power sector regulator (Nepra) once again lays bare a familiar picture: rising costs, stagnant demand, under-utilised capacity, persistent inefficiencies in transmission and distribution and an electricity system that continues to weigh on economic growth rather than support it. Despite years of policy interventions, the sector’s fundamentals remain misaligned.
What is often lost in this debate is the most basic economic reality: Pakistan cannot industrialise, grow its manufacturing base, or expand exports without affordable and reliable electricity. Energy is not merely a utility; it is a core input into competitiveness. High power tariffs function as an implicit tax on industry, pricing Pakistani exporters out of regional and global markets. No industrial policy, export incentive or exchange-rate adjustment can compensate for structurally expensive electricity.
Yet the dominant policy response continues to gravitate towards ownership change at the distribution end. Privatisation of distribution companies is repeatedly presented as the missing reform that will unlock efficiency and discipline. In reality, it risks becoming another distraction from the deeper structural problems embedded in the system.
Transmission and distribution are capital-intensive businesses with long payback periods. Reducing losses, modernising grids, deploying smart meters and upgrading feeders require sustained capital expenditure over decades. Returns are regulated, politically sensitive and frequently delayed. In a system where tariff decisions are often subordinated to political considerations and payment discipline is weak, it is difficult to identify private investors with the balance-sheet strength and risk appetite to take on such assets at scale. Even if ownership were transferred, the underlying economics would remain unchanged.
Experience has already shown that ownership alone does not resolve structural flaws. Where private participation has occurred, disputes over tariffs, delayed regulatory determinations and litigation have often replaced operational inefficiency as the binding constraint. Losses may shift geographically, but they do not disappear. Globally, this outcome is hardly surprising. In most countries, electricity grids remain publicly owned or tightly regulated natural monopolies. Efficiency gains are typically achieved through governance, enforcement and planning discipline rather than outright privatisation.
International comparisons frequently cited in reform debates reinforce this point. High-performing power systems have relied on credible institutions, long-term planning and strict enforcement of payment and pricing rules. Grid ownership has largely remained in the public domain, while market mechanisms have been applied selectively to generation and dispatch. Efficiency has flowed from predictability and discipline, not from changing who owns the wires.
The regulator’s latest findings underline why focusing on distribution reform alone is insufficient. Losses at the distribution level continue to add substantially to the circular debt, but they are not the dominant driver of high tariffs. That distinction belongs firmly to generation costs. Under-utilised plants, constrained transmission corridors and rigid dispatch arrangements prevent the system from operating on a true economic merit order. As demand growth has slowed and rooftop solar has eroded grid consumption, fixed costs have been spread over a shrinking base of paying consumers, pushing tariffs ever higher.
At the heart of this problem lies the structure of generation contracts. Capacity payments have grown into the single largest burden on the system. Pakistan now pays power plants not for electricity consumed, but for availability, regardless of whether the power is needed. Many plants operate well below capacity, yet their fixed dollar-denominated costs are fully recovered from consumers. These contracts were signed on the assumption of sustained demand growth and high utilisation rates that never materialised.
Projects financed under large bilateral and multilateral arrangements intensified this rigidity. While they added capacity quickly, they also locked the system into long-term take-or-pay obligations with limited flexibility. As the regulator has repeatedly pointed out, the result is a generation cost structure that dominates the tariff and leaves little room for relief elsewhere in the value chain.
Against this backdrop, expecting Pakistan to achieve competitive electricity pricing without revisiting these agreements is unrealistic. Distribution reform cannot compensate for generation costs that are structurally misaligned with demand and affordability. Terminating or renegotiating a handful of contracts may yield temporary fiscal relief, but it does not alter the underlying arithmetic of capacity payments embedded across the system.
Renegotiation, particularly of high-cost and foreign-currency-indexed agreements, is therefore unavoidable. This does not imply contract breaches or unilateral action. It implies a systematic reset: extending tenors to reduce annual capacity charges, recalibrating returns to reflect current financing conditions, aligning payments more closely with actual dispatch and reducing exposure to exchange-rate volatility. Other countries under fiscal stress have undertaken similar exercises. Pakistan’s hesitation reflects political and diplomatic discomfort rather than economic logic.
Without such a reset, privatising distribution companies risks becoming an exercise in transferring an unworkable cost structure to new operators. Private managers may collect bills more efficiently, but they will still be selling electricity priced far above regional competitors. Political pressure to suppress tariffs will persist, credibility will remain elusive and industrial users will continue to self-generate or exit the grid altogether.
What Pakistan ultimately requires is not incremental tinkering but a radical overhaul of energy policy. That rethink must occur within a decision-making framework that moves beyond bureaucratic silos and short-term administrative fixes. Power sector reform demands experts with multidisciplinary skills – energy economics, finance, engineering, contract law and industrial policy – working in an empowered structure capable of taking system-wide decisions. Such a framework will only succeed if it enjoys full political backing and unequivocal support from the establishment, insulating reform from populist reversals and institutional resistance.
Pakistan’s power crisis is not fundamentally an ownership problem. It is a pricing, contract and governance problem with direct consequences for growth and exports. Until the cost embedded in generation agreements is addressed head-on, and until reform is driven by empowered expertise rather than procedural inertia, debates over privatisation will continue to argue about the wrong end of the wire.
The writer is former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’.
