Pakistan cannot reform power tariffs without breaking up the DISCOs

Uniform national tariffs hide failure, destroy incentives, and make privatisation harder. But tariff reform will also fail unless the distribution companies are dismantled into real wires businesses and separable power purchase and supply functions.

Pakistan’s power tariff system has become a monument to confusion. It tries to do too many things at once and does most of them badly. It is supposed to recover costs, protect poor consumers, promote industrial competitiveness, preserve national political balance, hide utility failure, and keep the circular debt machine from exploding on any given day. The result is predictable: tariffs that are too high for industry, too opaque for consumers, too distorted for investment, and too dishonest for reform.

At the centre of this mess sits the uniform national tariff. On paper, it sounds equitable. In practice, it has become a political device that blurs performance, hides inefficiency, and weakens incentives across the entire sector. A consumer in a relatively better performing service area pays under a pooled structure that conceals the true economics of the local utility. A consumer in a badly run service area receives no clear signal about the real cost of poor recoveries, high theft, technical losses, or weak service quality. The utility itself is protected from accountability because its failures can disappear into national averaging.

This is not fairness. It is camouflage.

A tariff system should reveal information. Pakistan’s system suppresses it. It does not clearly distinguish between the cost of energy, the cost of transmission, the cost of distribution, the burden of capacity payments, the weight of taxes and surcharges, and the effect of utility underperformance. It rolls them into one political price and then asks consumers and investors to pretend the number means something economically coherent.

That approach destroys incentives on both sides. Distribution companies have weaker motivation to improve because poor performance is not fully exposed in the end-user tariff. Consumers have weaker motivation to respond efficiently because the bill does not show them what part of the burden comes from actual service, what part from policy, and what part from utility failure. Productive users, especially industry, are forced to carry costs that have little to do with the marginal cost of current supply and much to do with legacy distortions, cross-subsidies, and administrative pooling.

The consequences are now obvious. Industry sees electricity not as an input priced by economic logic, but as a fiscal and political instrument. Households see a rising bill without any improvement in service transparency. Better-performing DISCOs are denied the reward of their relatively stronger recoveries or lower losses. Worse-performing DISCOs are shielded from the full consequences of their own inefficiency. And every discussion of privatization becomes a quarrel over numbers that do not tell the truth.

That last point matters. Uniform tariffs are one reason privatization keeps stalling. A buyer cannot sensibly value a utility if the tariff is politically pooled, if costs are hidden across entities, and if the gains from better management are blurred by a national pricing fog. Investors may still bid, of course, but they will either discount heavily for uncertainty or demand protections that push risk back onto the public. In either case, the state does not achieve real reform. It merely changes the ownership of confusion.

The obvious reform is to move away from a single end-user tariff and toward a structure that separates what should be national from what should be local. A national base tariff can still cover generation, transmission, and clearly defined policy charges. But the distribution or wires component should increasingly reflect the actual performance and cost of the service area. That would finally expose where losses are high, where recoveries are poor, where service quality is weak, and where management is failing. It would also allow better-performing utilities to benefit visibly from improvement rather than being trapped inside the national average.

At the same time, support for the poor should be made explicit and targeted. Low-income protection belongs in a transparent subsidy framework, not buried in industrial and commercial tariffs through cross-subsidies that nobody admits honestly. If the state wants social solidarity, it should pay for it openly. What it should not do is use the power bill as a dumping ground for every unresolved policy objective in the sector.

But here is the harder truth: even that tariff reform will not work unless the DISCOs themselves are restructured far more radically than current policy seems willing to admit.

Pakistan cannot build a workable tariff system on top of distribution companies that are still vertically confused institutions — part wires business, part billing agency, part political buffer, part retail supplier, and part warehouse for system inefficiency. As long as the DISCO remains an all-purpose administrative creature, tariff reform will keep collapsing under contradictions. The present model hides the true cost of distribution, masks losses, socializes failure, and makes it impossible to create credible incentives for either management or consumers.

The sector therefore needs hard-core structural reform of the DISCOs. At a minimum, they should be dismantled into two distinct functions. First, a regulated wires company responsible for the physical network, metering, maintenance, service quality, system losses, and non-discriminatory access. Second, a separable power purchase and supply business that can progressively move toward commercial procurement, competitive sale, bilateral contracting, wheeling, hybrid arrangements, and eventual supplier choice where the market can support it.

That split is not an institutional luxury. It is the precondition for almost every serious reform Pakistan claims to want. Without it, the same entity remains both monopoly network owner and politically managed commercial intermediary. It controls the wires, buys the electricity, sells the electricity, carries the public-policy burden, and then asks the regulator and consumer to sort out the wreckage. That is not a market structure. It is an administrative knot.

Recent movement toward CTBCM and the very recent changes allowing hybrid consumption are welcome steps in the right direction. They suggest a growing recognition that consumers cannot remain permanently captive and that more flexible arrangements are needed. But nobody should mistake these moves for a fully workable market. A real power market requires open access, transparent wheeling charges, credible balancing arrangements, enforceable contracts, strong system operation, and a distribution structure that distinguishes clearly between the network business and the commercial sale and purchase of power.

Without that structural break, tariff reform will simply be layered onto the same dysfunctional base. Uniform tariffs may be adjusted, subsidy design may be tweaked, and privatization slogans may be repeated, but the core problem will survive: the DISCO remains too muddled to discipline and too protected to transform.

This is also why privatization efforts become such a mess. Selling a DISCO in its present form means asking investors to buy a politically fogged hybrid of monopoly wires, weak data, social obligations, pooled tariffs, uncertain recoveries, and often confused asset boundaries. The public, meanwhile, fears that the buyer will inherit monopoly power without public accountability. Both fears are justified because the institution itself has never been properly unbundled.

A sensible path would be much more disciplined. Publish DISCO-specific cost-of-service data. Separate the bill into energy, transmission, distribution, taxes, and subsidy components. Cap the pass-through of inefficiency above benchmark levels. Move industrial and large commercial users first toward cost-reflective wires charges and more open access. Protect poor consumers through explicit budgeted support rather than hidden cross-subsidies. And, above all, break the DISCO into a real wires company and a separable power purchase and supply function before pretending that tariff reform or privatization can work.

This is not anti-reform. It is the only route to actual reform. Pakistan does not need more tariff theatre. It needs truth in pricing, discipline in distribution, and institutions built for markets rather than for administrative concealment.

Until that happens, uniform national tariffs will continue to hide failure, consumers will continue to pay for inefficiency they cannot see, industry will continue to carry burdens it cannot sustain, and every privatization effort will continue to trip over the same old problem: the state is trying to sell and reform entities that it has never properly defined in the first place.

Copyright Business Recorder, 2026