Power sector’s bleeding wound

Rs600 billion. That’s the staggering cost of inefficiencies in Pakistan’s power distribution sector, as highlighted by Nepra’s “State of Industry Report 2024.” The numbers paint a grim picture, with key indicators like transmission and distribution (T&D) losses and billing under-recovery deteriorating further. What’s worse? This is not a sudden crisis but the culmination of years of neglect and systemic inertia.

Nepra establishes tariffs with the target of 100 percent recovery for electricity units sold by discos. However, any shortfall in the amount billed is not shifted onto the consumers. Instead, it is reflected on the discos’ balance sheets, which, if left unrecovered, ultimately contributes to the ever-growing circular debt. The issue of the non-recovery of electricity units sold is a persistent challenge. The unrecovered amounts directly affect discos’ revenue streams, leading to financial deficits and a reliance on subsidies or loans to cover operational costs. Moreover, this non-recovery perpetuates the circular debt, which hampers the ability to invest in infrastructure improvements and leads to a vicious cycle of financial instability.

The graphs tell the story of distribution losses, where the actual losses persistently outstrip the allowed threshold. For FY24, actual T&D losses stood at nearly 17.8 percent against the allowed 12 percent, marking a significant failure to meet regulatory targets. With every percentage point of loss translating into Rs40 billion in financial drag, the sector continues to bleed resources. Despite years of reform rhetoric, these losses have steadily worsened over the past five years.

Non-recovery isn’t just a financial problem—it reflects the structural weaknesses of the distribution sector. Fictitious billing practices have compounded the shortfall, while a lack of governance within discos has enabled electricity theft and poor recoveries to persist. Enhanced governance and accountability at all levels of discos are crucial to tackling this challenge. Moreover, the deployment of advanced metering infrastructure (AMI) meters in high-loss areas could significantly curb theft and improve billing accuracy. These meters can drastically reduce human discretion in meter readings, limiting opportunities for collusion between disco staff and consumers engaging in electricity theft.

The other graph underscores the financial impact of inefficiencies, with the cumulative cost of T&D losses and under-recovery ballooning to Rs 650 billion by FY24. This burden is not just a drag on discos’ balance sheets but also a direct contributor to Pakistan’s power sector circular debt crisis. Governance reforms, stricter anti-theft enforcement, and coordination between discos, law enforcement agencies, and local authorities are critical to addressing this issue. Legal actions against defaulters, supported by public awareness campaigns, can help improve recoveries and operational efficiency.

Public perception of discos also remains a significant obstacle. Many consumers view non-payment of bills as a necessary response to economic hardship or as an acceptable practice due to the inefficiencies within the system. To change this mindset, discos need to engage in targeted awareness campaigns to educate consumers on the societal and financial costs of non-payment, the penalties for illegal connections, and the benefits of timely bill payments.

Another critical area for reform is the subsidy structure. Indirect subsidies currently benefit large segments of the population indiscriminately, creating market distortions and financial strain on the government. Moving to a targeted subsidy system focused on low-income households will reduce the overall subsidy burden and encourage affluent consumers to pay rates reflective of actual electricity costs. This reform should be implemented gradually to minimize social disruption, but it is a step that cannot be delayed any longer.

Innovative payment solutions also deserve attention. Prepaid metering systems, flexible installment plans, and microfinance schemes could offer low-income consumers more manageable ways to pay their bills. These measures would reduce the risk of default while providing discos with greater financial stability.

Nepra’s report is both a wake-up call and a reflection of years of mismanagement. The Rs600 billion drag on the power sector is not just a statistic—it represents a roadblock to economic recovery and energy security. Without systemic reforms, including privatization of discos, modernization of infrastructure, and stronger governance frameworks, the circular debt crisis will only deepen. Policymakers must act with urgency to pull the power sector out of this quagmire and set it on a path toward sustainable growth.