BR RESEARCH: Power sector’s business model raises some questions
The National Electric Power Regulatory Authority’s (NEPRA) State of the Industry Report is its flagship publication. It released last Friday, covered the period between July 2024 and June 2025, and earned widespread coverage.
Within its content, one thing was clear: efforts are being made to revitalize the sector, negotiations are being re-done, contracts re-inked, and a general feel of overhaul is being instilled. But findings of the report suggest somewhat otherwise.
When you study the report, especially in the backdrop of a presentation made to the finance ministry a few days earlier, you realise one simple point: Pakistan’s power sector – despite all the efforts (talk, more than actual on-ground improvement) is still a mess. It will take years of concerted effort, policymaking, provincial coordination, protests, sacrifices, and still some more to first stop the bleeding, begin the healing before a recovery can be shown. But the energy ministry, like any company CEO, is eager to show results.
Let’s begin by examining the accounts presented to Q block, the arm of the federal government responsible for allocating finances, budgeting, and then understanding the revenue side of things. Overall, FY25’s revenues were down, and so were profits. For an ex-president of a major bank, the finance minister must have started paying closer attention. The presentation then states net losses are up 301%, a net financial deteriorating that indicates value destruction at the portfolio level.
READ MORE: Power sector: Nepra sees ‘limited’ progress despite fixes
Among the nine sectors that the government owns, power sector was the only with negative equity. It was second worst when it came to overall losses suffered (infrastructure and transport won the race). But the true highlight was the remark that it has an “unsustainable business model”.
But this isn’t the shocking bit. What’s shocking is that in the backdrop of so-called improvement in performance and the constant remarks that the sector is being overhauled and the decline has been arrested comes the revelation that power sector’s losses are up 9% during FY25.
High tariffs, reduction in circular debt, reforms etc and all the other claims still took the losses to Rs242 billion. Among the worst DISCO was QESCO, followed by PESCO, SEPCO, HESCO, LESCO, and then IESCO.
While it may be the best-performing among its universe, IESCO still incurred a loss of Rs1.4 billion, taking its accumulated losses to Rs133.7 billion. In the remarks, it says its cost base remains high. We wonder why.
When it comes to the SOI report, IESCO, which is in the top tier when it comes to controlling transmission/distribution loss and has kept its recovery nearly 435 basis points above the average recovery rate, has shown impressive results. Its financial impact, still, on the account of just these two overheads runs close to Rs10 billion combined.
Overall, the gap between the average transmission and distribution losses of all DISCOs and the allowed benchmark by NEPRA is 612 basis points. One admits that it has come down from last-year’s difference of 654 basis points, but even then, it points to one simple argument: on-ground improvements have not happened.
The government, with all its might and negotiations, still has work to do when it comes to privatising its DISCOs.