Privatization without institutions is a change of letterhead

Private ownership can improve incentives, but it cannot rescue a sector governed by opaque subsidies, weak regulation, disputed data and a non-competitive market. Pakistan must redesign the institution and the transaction together—or risk turning privatization into another guarantee-backed public liability.

Pakistan’s latest answer to the distribution crisis is privatization, but the immediate stakes are larger than a sale process: consumers need reliable service, investors need credible rules, and the state needs to stop converting weak governance into fiscal risk. Public distribution companies lose electricity, fail to collect bills, deliver uneven service and remain vulnerable to political interference. A private owner, it is assumed, will impose discipline where the state has failed.

That assumption contains an important truth—but only half of one. Ownership can change incentives, management quality and access to capital. It cannot, by itself, settle government arrears, make subsidies predictable, reform NEPRA, create a competitive wholesale market, remove transmission constraints or force politically protected consumers to pay. If these institutions remain unchanged, privatization will not solve the crisis; it will relocate it into contracts, tariffs and guarantees that are harder for the public to see.

Ownership matters—but institutions decide what it can achieve

Cross-country evidence supports this caution. Privately owned utilities often perform better than public utilities on average, but public utilities perform better where institutions—especially control of corruption—are stronger. The evidence is observational rather than a clean causal experiment, yet its central message is clear: ownership outcomes depend on the rules, information and enforcement environment in which the utility operates.

This is directly relevant to Pakistan. A private DISCO will inherit disputed receivables, unreliable consumer records, politically determined subsidies, court cases, theft-prone feeders, employee liabilities and power-purchase obligations it did not negotiate. It may be denied timely tariff adjustments but still be held responsible for financial losses. It may be asked to invest in a grid whose future role is being transformed by rooftop solar, batteries and electric vehicles, while the ownership of customer data and digital-platform rights remains undefined.

The digital question is no longer peripheral. Tomorrow’s distribution company will operate a bidirectional platform connecting rooftop generation, batteries, electric vehicles, smart appliances and industrial flexibility. If the transaction documents treat it merely as a meter-reading and bill-collection business, the buyer may acquire control over the very data and network interfaces on which future competition depends. Customer consent, data portability, cybersecurity, aggregator access and interoperability must therefore be settled before—not after—the sale.

No serious investor prices such uncertainty cheaply. Either the transaction fails to attract credible bidders, or bidders protect themselves through a low purchase price, guaranteed returns, sovereign support and extensive pass-through clauses. In that case, the government will have privatized the upside in name while keeping the downside on the public balance sheet. The public has changed the operator but not transferred accountability.

Privatization is not competition

Pakistan must also stop confusing distribution privatization with electricity-market competition. The local wires network is a natural monopoly and will remain regulated whether it is publicly or privately owned. Competition arises in generation and supply: multiple sellers, credible open access, transparent settlement and the ability of eligible consumers eventually to choose a supplier. A privately owned monopoly that controls both the wires and the customer relationship can obstruct competitors as effectively as a public one unless legal, functional and data separation are enforced.

That is why the design of CTBCM matters more than its ceremonial launch. If most supply remains locked in legacy contracts, eligible participation is narrow, wheeling charges are loaded with unrelated historical liabilities, and settlement is slow or contestable, the market will not become competitive. It will merely place a market label on administrative allocation and give monopoly distributors new tools to frustrate entry. DISCO restructuring must therefore separate the regulated network business from competitive supply and clarify supplier-of-last-resort obligations before ownership is transferred.

The uniform national tariff compounds the problem. It conceals differences in losses, collections and service performance, and turns subsidies into opaque transfers among consumers, companies and government. Social protection is legitimate, but it should be explicit, targeted and budgeted. A private operator cannot be expected to finance unfunded social policy and then be penalised for failing to recover its costs.

The transaction must begin with a regulatory compact

Before bidding any DISCO, government should publish a bankable regulatory compact built around non-negotiable conditions: audited feeder- and consumer-level data; an independently verified baseline for technical and commercial losses; settled legacy receivables and liabilities; automatic and time-bound tariff adjustment rules; budgeted subsidy-payment arrangements; staff-transition obligations; open-access and customer-data rules; minimum investment commitments; and measurable standards for reliability, connections, complaint resolution and safety.

Performance must be judged against outcomes the operator can control. Loss reduction, collection efficiency, transformer failure, outage duration, connection time and voltage quality can all be measured, but the baseline must be credible and independently audited. Otherwise, the state will accuse the operator of underperformance, the operator will blame inherited data and government default, and both will seek to renegotiate the contract.

The compact must be reciprocal and enforceable, not aspirational. If government commits to pay targeted subsidies within a fixed period, failure should trigger interest or access to an escrow mechanism. If the operator misses reliability or loss-reduction targets, penalties should apply automatically. If the regulator delays a decision beyond the statutory timetable, the contract should specify an interim treatment. A reform that disciplines only the private party while leaving public obligations discretionary will not be bankable; one that guarantees the private party’s return regardless of service will not be legitimate.

The transaction model should follow institutional readiness, not ideology. Full privatization may be appropriate where liabilities are clean, regulation is credible and investors can bear financing and demand risk. Elsewhere, a time-bound operations concession may be a better bridge, transferring operations, billing, collections and limited efficiency investment to a private concessionaire while the public utility retains asset ownership, bulk power procurement and major capital expenditure.

That model can import management discipline without pretending that all sector risks are privately financeable. But it is not a free lunch. The state must continue funding major network investment, define service and universal-access obligations, and resist political interference. Remuneration should reward independently verified improvements rather than guarantee fees regardless of performance. The concession must have a credible termination and handback regime, not become another perpetual entitlement.

The decision rule should be explicit. A DISCO is auction-ready only when data, liabilities, subsidies, tariffs, open-access obligations and enforcement mechanisms are sufficiently clear for bidders to price risk without hidden sovereign guarantees. Where those conditions are absent, the priority should shift from sale proceeds to sector reform readiness: clean the baseline, test performance contracts or concessions, and privatize only when accountability can genuinely move with ownership.

International experience points to the same lesson

International experience points in the same direction. Delhi is often cited as a positive case because private distribution companies reduced very high aggregate technical and commercial losses after the 2002 reforms, but that success rested on tariff adjustment, regulatory backing, metering investment and a defined transition framework—not ownership alone. Odisha’s first privatization is the sharper warning: weak scheme design, inadequate investment, poor loss reduction, insufficient political support and weak regulatory oversight led to licence revocations, state intervention and a second reform attempt years later.

The pattern extends beyond India. In several Latin American and emerging-market cases, private participation improved efficiency where contracts, regulators and subsidies were credible; where regulatory capacity was weak, tariffs were disputed, obligations were underfunded and enforcement failed, reforms produced renegotiations, backlash or investor exits. Pakistan should draw the practical lesson: privatize only what the state can regulate, price, fund and enforce.

Reform the institution and the owner together

Pakistan should not use institutional weakness as an excuse to postpone ownership reform indefinitely. Public management has had decades to improve, and consumers cannot be asked to wait for perfect governance. The practical answer is to design transactions that are robust to weak institutions: transparent data rooms, competitive bidding, public contracts, escrowed government payments, automatic penalties, independent verification and real-time performance dashboards.

Nor should the government begin with whichever DISCO is easiest to sell merely to claim a success. It should explain the selection criteria, publish the liabilities retained by the state, show the expected efficiency gains and state how consumers will benefit. Selling a relatively strong company while leaving the weakest utilities untouched may raise proceeds, but it will not solve the national problem.

The objective is not to prove that private ownership is virtuous or public ownership is doomed. It is to build a distribution system that connects consumers quickly, delivers reliable power, enables supplier choice, integrates distributed energy and pays for itself without hiding subsidies or losses. Ownership is one instrument in that reform—not the reform itself.

Pakistan should proceed with DISCO privatization and concessions, but only through a regulatory compact that makes obligations measurable, reciprocal and enforceable on both sides. The test is not whether an asset is sold; it is whether losses, subsidies, investment duties, customer rights and market access are made transparent before the sale. Otherwise, the country will sell yesterday’s utilities, preserve yesterday’s rules, and discover, years later, that the crisis has merely acquired a new logo. Privatization without institutions is not transformation. It is a change of letterhead.

Copyright Business Recorder, 2026