Tariff subsidies, surcharges: PD to sign PSO-Discos deals

ISLAMABAD: The Power Division is to sign Public Service Obligations (PSO) agreements with the power Distribution Companies (DISCOs) on management and administration of tariff subsidies and relief packages and collection and deposit of surcharges under the NEPRA Act, well informed sources told Business Recorder.

Sharing details, sources said that pursuant to the State-Owned Enterprises (Governance and Operations) Act, 2023 (“SOE Act”), the federal government may, from time to time, require the SOEs to perform certain public service obligations in terms of Section 7(4) of the SOE Act, read with Schedule II of the SOE Act.

Historically, the DISCOS have been performing certain public service obligations on behalf of the Federal Government, including the management and administration of government-funded subsidies such as tariff differential subsidies, tariff relief packages, and specific discounts, as well as the collection of statutory surcharges.

These functions have been carried out in accordance with the Tariff Subsidy Standard Operating Procedure circulated on January 13, 2025 and other directions issued by the Federal Government from time to time.

READ MORE: Around Rs1.7/unit relief in Discos’ Q1 tariffs likely

To formally recognize, standardize, and govern these arrangements in line with the SOE Act, the Power Division has identified the need to execute a Public Service Obligation (PSO) Agreement, whereby these services-being performed by DISCOs on behalf of the Government-are explicitly defined and established as key public service obligations.

Under the SOE Act, the SOE (Ownership & Management) Policy, 2023 has been drafted and approved, which provides for a detailed mechanism for the execution of PSO Agreements. Accordingly, a draft PSO Agreement has been prepared in consultation with the DISCOs and external consultants. Board Resolution of all the DISCOs for executing the PSO.

Salient features of the draft PSO Agreement are as follows: (i) First Party: Government of Pakistan through the Ministry of Energy & Finance Division; (ii) second party: SOEs licensed by NEPRA for the distribution and supply of electric power ;(iii) services include management and administration of tariff subsidies and relief packages ;(iv) services further include the collection and deposit of surcharges under the NEPRA Act ;(v) payment terms as may be applicable for the performance of public service obligations; (vi) reimbursement of eligible expenses by the Government of Pakistan; (vii) designation of service areas for the performance of services as per the First Party guidelines; (viii) effective from signing until expiry or earlier termination by First Party; and (ix) disputes referred to the Secretary of the Finance Division and the Power Division.

The proposal was submitted before the Economic Coordination Committee (ECC) of the Cabinet held on April 27, 2026. The ECC decided that since the matter is related to the SOE Act, 2023, the proposal should be considered by the Cabinet Committee on SOEs (CCoSOEs), after which the Power Division solicited approval of the draft PSO Agreement, marked for further necessary processing and execution with the DISCOs for the timely formalisation of the public service obligations, particularly in light of the agreed terms and conditions of the Government of Pakistan with International Financial Institutions.

Copyright Business Recorder, 2026