Pakistan’s power sector is a circus, and it’s not entertaining

As of August 30, 2025, Pakistan’s net Foreign Direct Investment (FDI) in the power sector stood at a meagre USD 86.96 million. This is despite years of effort. Numerous administrations have also attempted to privatise loss-making power distribution companies, but these initiatives have failed consistently. The underlying reason is simple: inconsistent regulatory policies that discourage potential investors while frustrating existing ones.

Consider the case of K-Electric, Pakistan’s only privatised power utility in the club of distribution companies. Recently, the National Electric Power Regulatory Authority (Nepra) announced a PKR 7.6 per unit reduction in its tariff. Remember that this is the cost-side tariff and does not impact on customer bills. The Power Division celebrated the move, calling it a “landmark decision” and expressing pride in an “in-time merit-based review” supposedly guided by “principles of equity, consistency, and sectoral sustainability.” But does this claim hold up to scrutiny?

In an editorial by this newspaper, it was stated, among other things, that “under pressure, and at the behest of the power division, the regulator virtually reversed its own order and drastically revised the granted increase in tariff. The question is if the earlier process truly involved rigour, as claimed, then why the sudden U-turn? And what is the legal basis for taking suo motu action on its own decision?”

When K-Electric submitted its Multi-Year Tariff (MYT) request in 2023, the Power Division remained silent, despite extensive consultations with the regulator. It only filed a review after NEPRA had issued its determination, requesting the regulator to alter K-Electric’s tariff retrospectively. This delay and subsequent retroactive adjustment have inflicted severe financial strain, with losses estimated at over USD 353 million (around PKR 100 billion) annually.

The claim of acting under “principles of equity, consistency, and sustainability” appears hollow in practice. Equity, by definition, implies fairness and justice. Yet, the very consumers of Karachi, presented as the primary beneficiaries of this decision, continue to pay an additional per-unit surcharge known as the Power Holding Limited (PHL) levy. This surcharge is meant to help service circular debt that arises from inefficiencies in other power distribution companies, to which Karachi’s consumers make no contribution. Over the years, Karachi residents have paid billions to cover the national circular debt, a punishment for inefficiencies they did not cause.

Furthermore, the recent tariff determination undermines the principles of consistency and sectoral sustainability. It is unrealistic to expect a privatized entity absorbing losses exceeding PKR 100 billion to continue operations in high-loss areas without compromising service quality. The inevitable consequence will be a further deterioration in electricity supply to already underprivileged parts of Karachi.

The Power Division has also claimed that the PKR 7.6 per unit reduction would help lessen fiscal expenditure and relieve the national budget. To add to the injustice, Karachi consumers are also being asked to bear an additional burden of PKR 30–40 billion in the form of Fuel Cost Adjustment (FCA) reversals—charges they have already paid in one form or another.

In essence, what is being portrayed as a reform-driven and equitable decision is, in reality, a reflection of deep-rooted inconsistencies that plague Pakistan’s power sector. Policies are being shaped reactively rather than strategically, and decisions celebrated as “landmark” often mask the financial and structural instability they create.

Until the government embraces regulatory discipline, transparency, and fairness for all stakeholders, the circus of Pakistan’s power sector will continue, at the expense of both investors and consumers.

Copyright Business Recorder, 2025