ISLAMABAD: Pakistan’s power distribution companies (DISCOs) are haemorrhaging around $1 billion annually due to rampant line losses, theft and inefficiencies, crippling their ability to upgrade infrastructure and jeopardizing the long-term viability of the energy sector.
A report by the Ministry of Finance released to meet IMF conditions, titled State Owned Enterprises (SOEs), stated that the distribution companies (DISCOs) in Pakistan—such as IESCO, LESCO, MEPCO, HESCO, GEPCO, QESCO, and PESCO—face a confluence of high-risk factors that contribute to operational inefficiency and an entrenched circular debt problem.
This debt is largely driven by the inability of DISCOs to recover sufficient revenue from consumers to cover the costs of electricity generation and distribution. Poor collection rates, high transmission and distribution losses, delayed government subsidies, and infrequent tariff adjustments create a cycle of financial strain. The report says this circular debt ultimately hinders DISCOs’ capacity to invest in infrastructure, maintain equipment and improve operational efficiency, perpetuating a cycle of inefficiency and financial instability.
According to the report, the core of these challenges is the high levels of operational and credit risks inherent in DISCOs’ business model. Operational inefficiencies, such as outdated infrastructure, high distribution losses and widespread theft, amplify the financial burden, while credit risk arises from large receivables, poor recovery rates and delayed government subsidies. This dual threat limits the cash flow needed for day-to-day operations and for essential investments in advanced metering infrastructure (AMI) and system upgrades.
Additionally, frequent government interventions and delays in tariff adjustments prevent DISCOs from charging consumers the true cost of electricity, widening the revenue gap. Consequently, the DISCOs find themselves in a perpetual cycle of debt and inefficiency, which impacts their financial stability and threatens the broader energy sector’s sustainability in Pakistan, the report stated.
Several SOEs incurred significant losses during FY2024. The largest loss was reported by the NHA at Rs295.5 billion, followed by QESCO at Rs120.4bn, PESCO Rs88.7bn, PIA Rs3.5bn, Pakistan Railways at Rs51.3bn, SEPCO Rs37bn, LESCO Rs34.5bn, Pakistan Steel Mills Corp Rs31.1bn, HESCO Rs 22.1bn, GENCO-II Rs17.6bn, IESCO Rs15.8bn, Pak Post Office Rs13.4bn, TESCO Rs 9.5bn, GEPCO Rs8.5bn, GENCO-III Rs7.8bn and all others cumulatively Rs23.7 billion. Accumulated losses stand at a colossal Rs5,748bn with the majority in the past 10 years alone.
The top 15 profit-making entities were led by OGDCL at Rs208.9bn, Pakistan Petroleum Limited at Rs115.4bn, National Power Parks at Rs76.8bn, Govt Holding PVT Limited at Rs69.1bn, Pak Arab Refinery Company Rs55.0bn, Port Qasim Authority Rs41bn, MEPCO Rs31.8bn, NBP Rs27.4bn, WAPDA Rs22.2bn, KPT Rs20.3bn, PNSC Rs20.1bn, PSO Rs19.6bn, State Life Insurance Corp. Rs18.3bn and PKIC Rs15.2bn respectively.
Gross revenues of federal State-Owned Enterprises (SOEs) reached Rs13,524 billion, reflecting a 5.2pc increase YOY. Total aggregate profits were Rs820 billion, a 14.61pc increase YOY while lossmaking SOEs reported aggregate losses of Rs851 billion, a 14.03pc decrease YOY for the 12 months ending June 2024. These losses include government assistance of Rs782 billion in subsidies and Rs367 billion in grants added to revenues. Further, removing the PSWF entities the net aggregate losses after offsetting with profit-making entities comes to Rs521.5 billion. The book value of assets rose by 6.37pc YOY to Rs38,434 billion, while liabilities increased by 6.7 pc YOY to Rs32,571 billion, resulting in net equity of Rs5,863 billion, a 4.47pc increase YOY. Low free cash flow and high Weighted Average Cost of Capital ranging from 17pc to 22pc led to a low return on equity of -0.5 pc and a return on invested capital of 3.4pc.
