Print Print edition: 2026-03-10

Nepra pricing: AGP flags higher tariffs due to Discos’ inefficiencies

Published March 10, 2026 Updated March 10, 2026 06:09am

5 min

By Mushtaq Ghumman

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ISLAMABAD: The Auditor General of Pakistan (AGP) has observed that inefficiencies in power distribution companies (DISCOs) have been systematically embedded in tariffs determined by NEPRA, resulting in higher consumer tariffs and an increased fiscal burden on the government. The tariff differential subsidy reached Rs 1.2015 trillion during the financial year 2024–25.

According to the audit (Power) review of the Strategic Plan for the privatisation of the power sector, the reform envisaged that after the unbundling and corporatization of WAPDA, distribution companies would operate as commercially autonomous and financially self-sustaining entities. A central objective of the reform was the progressive reduction of Transmission and Distribution (T&D) losses to efficient and internationally comparable levels through managerial autonomy, profit-linked incentives, effective theft control, and strict accountability of management.

The plan emphasized that loss reduction would be a primary performance benchmark for distribution companies and that persistent inefficiencies would not be transferred to consumers or the government through subsidies. Instead, such inefficiencies were to be addressed at the utility level through improved governance and enforcement.

The Strategic Plan further envisaged that privatized or corporatized utilities would demonstrate measurable efficiency gains over time, comparable with efficient regional and international utilities, thereby validating the effectiveness of unbundling and reform ownership.

During the impact audit of WAPDA’s unbundling, it was observed that both LESCO and PESCO were unable to meet the T&D loss targets prescribed by NEPRA. While LESCO’s losses remained within a relatively manageable but persistently non-compliant range (11.3 percent to 15.92 percent), PESCO exhibited severe inefficiency, with actual losses frequently more than double the allowed limits.

PESCO’s losses escalated to 38.1 percent in FY2017-18, 38.9 percent in FY2019-20, and 37.15 percent in FY2024-25, demonstrating the absence of sustained improvement over nearly a decade.

To further assess reform outcomes, a comparison was made with K-Electric, the only distribution utility privatized following WAPDA’s unbundling.

For instance, in FY2015-16, LESCO’s actual losses were 13.9 percent compared to allowed losses of 11.75 percent, while in FY2024-25, its actual losses were 13.7 percent against target losses of 9.46 percent. Likewise, PESCO’s actual losses were 33.8 percent against allowed losses of 26 percent in FY2015-16, while in FY2024-25, the company’s actual losses were 37.15% against a target of 19.26 percent.

In comparison, K-Electric’s actual losses were 22.24% against a target of 22.1 percent in FY2015-16, while in FY2024-25, its actual losses were 14.74 percent against a target of 14.58 percent.

Unlike LESCO and PESCO, K-Electric’s actual T&D losses generally remained close to NEPRA-allowed targets throughout the reviewed period. Although K-Electric also experienced instances of marginal non-compliance, the deviation between allowed and actual losses was significantly narrower and exhibited a declining trend over time, reflecting comparatively stronger operational control and enforcement mechanisms.

The comparative analysis indicated that while corporatization of LESCO and PESCO was intended to introduce commercial discipline and managerial autonomy, the absence of effective governance reforms, weak accountability frameworks, and limited operational independence undermined these objectives, particularly in PESCO.

In contrast, K-Electric’s privatized and corporatized structure enabled stronger loss-reduction incentives and improved theft control mechanisms, contributing to relatively better performance against regulatory benchmarks.

Audit is of the view that the persistent deviation of LESCO—and especially PESCO—from NEPRA-approved targets reflects a breakdown in managerial accountability and the inability to implement effective profit-linked incentives. Management in these DISCOs failed to control electricity theft and address governance challenges, which the Strategic Plan for the Privatisation of Pakistan Power Sector (1992) specifically aimed to resolve through corporatization and autonomy.

The audit further stated that despite the persistent non-achievement of T&D loss targets by LESCO and PESCO, and partial non-compliance by K-Electric, the government continued to provide substantial subsidies to all three utilities. These subsidies effectively offset inefficiencies arising from excess losses and allowed utilities to recover costs that were not controlled operationally.

As a result, inefficiency was systematically embedded in NEPRA-determined tariffs, leading to higher consumer tariffs and increased fiscal burden on the government in the form of tariff differential subsidies, which reached Rs 1,201.5 billion during FY2024-25.

Audit recommended that DISCO management should enforce strict accountability frameworks aligned with NEPRA-approved performance benchmarks, with clear responsibility and consequences for non-compliance.

In addition, prepaid and advanced metering mechanisms should be progressively introduced to curb electricity theft, prevent unauthorized load extensions, and minimize the accumulation of receivables, thereby strengthening operational control and revenue assurance.

In its comparative analysis of revenue recovery, the audit noted that from FY2014-15 to FY2024-25, LESCO and PESCO failed to achieve the mandatory 100% recovery target prescribed by the regulator.

PESCO’s recovery performance showed persistent structural weaknesses, with recovery ratios frequently falling in the 80 percent range, such as 86.6 percent in FY2015-16 and 88 percent in FY2018-19. In FY2024-25 alone, PESCO failed to recover billed revenue amounting to Rs 26.23 billion, reflecting chronic enforcement, governance, and institutional constraints.

Although LESCO also failed to meet the 100 percent recovery benchmark in most of the reviewed years, its performance remained comparatively better than PESCO. Recovery declined to 94.33 percent in FY2022-23 and 96.1 percent in FY2023-24. However, in FY2024-25, LESCO recorded excess recovery of Rs 12.98 billion. The cumulative collection losses of LESCO and PESCO during the reviewed period amounted to Rs 253.76 billion, representing a substantial erosion of sectoral cash flows.

For a broader reform impact assessment, recovery performance was also compared with K-Electric. The analysis indicated that K-Electric’s collection losses were relatively higher in absolute terms than those of LESCO and PESCO during the same period, with cumulative losses of Rs 243.24 billion, despite serving a single metropolitan service area.

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