Why selling Pakistan’s better DISCOs?

Privatisation without tariff truth, asset ring-fencing, and a competent regulator risks turning reform into selective extraction.

At first glance, selling Pakistan’s better-performing distribution companies lock, stock and barrel sounds sensible. If privatisation is the goal, why not begin with the cleaner utilities, attract stronger bidders, and show that reform is finally moving? In a country tired of state-owned inefficiency, that argument carries obvious appeal. But if the better DISCOs are sold whole — including valuable land in prime urban centres — and if the regulator remains weak, delayed, and vulnerable to capture, the transaction can easily become something very different from reform.

It can become a transfer of public value without a corresponding transfer of discipline.

That is the real danger. Pakistan does not merely need a change of ownership. It needs a change in the structure and incentives of the power sector. Without that, privatisation risks rewarding the buyer for the quality of the service territory rather than for any serious improvement in service, recovery, losses, investment, or consumer welfare.

The first problem is asset confusion. A distribution company is supposed to be a utility business. It operates a network, connects consumers, meters usage, maintains local infrastructure, and delivers electricity across a licensed area. But if such a company is sold together with all land in commercially valuable urban locations, the buyer is not simply acquiring a utility. It is acquiring a monopoly network wrapped around a real-estate option. That distorts the transaction from day one. The incentive shifts from improving distribution performance to extracting value from the asset base.

This matters more than many people admit. Prime urban land in Islamabad, Faisalabad, Gujranwala, Lahore, and other major centres can be worth a great deal. If it is transferred casually inside a utility privatisation, the state may end up under-pricing the public asset. Worse, the operational weaknesses of the utility business may be tolerated by the investor because the real upside lies elsewhere. That is not privatisation as reform. That is privatisation as bundled arbitrage.

The second problem is selection bias. When the state sells the better DISCOs first, it may leave itself holding the weakest companies, the most difficult geographies, the highest-loss service territories, and the most politically painful consumers. The public sector is left with the bad balance sheet, while the private sector receives the denser load centres, better-paying customers, more valuable land, and a more commercially attractive footprint. In effect, the cream is privatised, and the headache is nationalised.

There is nothing inherently wrong with sequencing. Governments often sell better assets first to build credibility. But sequencing only works if it is part of a wider system reform. If not, the transaction merely worsens the asymmetry. The strong get stronger under private ownership. The weak remain trapped in public dysfunction. The country is then told to celebrate reform while the underlying sector remains fragmented, uneven, and politically distorted.

The third and perhaps most serious problem is regulation. Selling a monopoly network without a strong and competent regulator is not reform. It is the creation of a private monopoly with better lawyers. The public often imagines privatisation as discipline imposed by markets. But wires businesses are not normal competitive markets. Distribution remains a regulated monopoly in the licensed area. If the regulator cannot benchmark costs, enforce performance standards, police related-party transactions, scrutinize capital expenditure, and prevent tariff gaming, the buyer has every reason to optimize its return at the consumer’s expense.

That is why regulatory weakness is not a side issue. It is the issue. A weak regulator cannot stop under-investment hidden behind accounting. It cannot stop service discrimination. It cannot stop a buyer from monetizing non-core assets while pleading financial stress on the wires side. It cannot build trust with consumers, and without consumer trust every tariff decision becomes a political fight.

Pakistan’s uniform national tariff makes the problem even worse. A politically pooled end-user tariff hides the true condition of each DISCO. It conceals which utility is efficient, which one is badly run, and how much of the final tariff is driven by losses, recovery, service quality, or policy equalization. If a buyer enters such a system, it is not valuing a transparent commercial entity. It is valuing a utility inside a political fog. That makes fair pricing harder, post-privatisation accountability weaker, and future reform more vulnerable to manipulation.

This is why a straight lock-stock-and-barrel sale of better DISCOs is the wrong model. Pakistan should not privatize the old administrative creature intact. It should first dismantle it into what it actually contains. At a minimum, the sector needs separation between the regulated wires business and the purchase and sale of power. The wires company should be a regulated network operator with explicit obligations on maintenance, metering, reliability, billing platform integrity, and loss reduction. Supply, by contrast, should move over time toward more competitive procurement and sale of electricity through bilateral contracts, wheeling, hybrid arrangements, and eventual supplier choice where feasible.

That separation matters because the future of the power sector does not lie in preserving distribution monopolies under new owners. It lies in building a system in which the network remains regulated, but the commercial supply function becomes more contestable. Recent movement in the CTBCM framework and the opening to hybrid consumption point in that direction. But those reforms cannot sit comfortably inside a DISCO that still combines monopoly wires, politically managed retail supply, pooled tariffs, and public-policy obligations all under one roof.

If Pakistan wants genuine reform, land also needs to be ring-fenced. Core operating land required for substations, rights-of-way, depots, and network assets should remain attached to the regulated utility. Non-core and surplus land should be separately identified, valued transparently, and either retained by the state, transferred to a separate holding vehicle, or sold through open process. Hiding land value inside a utility sale is an open invitation to under-pricing, controversy, and distrust.

A smarter privatisation path would therefore look very different from a crude asset sale. First, publish a clear cost-of-service profile for each DISCO. Second, ring-fence the land. Third, separate the wires business from the supply function. Fourth, move away from the fiction that uniform tariffs tell the truth. Fifth, strengthen the regulator before the sale, not after the scandal. Sixth, make the privatisation contract hard in the right way: service targets, loss-reduction targets, metering and recovery benchmarks, investment commitments, restrictions on asset stripping, and penalties for underperformance.

None of this is anti-privatisation. On the contrary, it is the only way privatisation can become credible. Serious investors should prefer a cleaner framework because it reduces political risk and clarifies the commercial logic of the business. Consumers should prefer it because it gives them a regulator and a contract they can hold the operator against. The state should prefer it because it prevents a one-off sale from becoming a long-term public grievance.

The deeper point is this: Pakistan’s power sector has spent too many years using opacity as a substitute for policy. Uniform tariffs hide performance. Weak regulation hides failure. Bundled institutions hide costs. Privatisation, if done badly, will simply hide extraction behind a reform label.

The answer is not to abandon privatisation. The answer is to stop pretending that ownership alone is the reform. Ownership is only the beginning. Without tariff truth, institutional unbundling, land ring-fencing, and a regulator with teeth, selling the better DISCOs whole could leave Pakistan with the worst of both worlds: private control over the most valuable assets and public responsibility for the rest.

That would not be reform. It would be a fire sale with a policy speech attached.

Copyright Business Recorder, 2026