After completing the sale of a majority stake in Pakistan International Airlines, the government has moved to a transaction that is considerably more difficult: the privatisation of the state-owned electricity distribution companies.
The relevant lesson from PIA is not that privatisation has suddenly become easy. It is that a buyer will only price a business once its liabilities, operating rights, regulatory treatment and future capital requirements are sufficiently clear. PIA’s second attempt succeeded after legacy debt was separated, tax and transaction terms were revised, international routes reopened and the airline’s financial position improved. The state first had to make the business intelligible.
Electricity distribution will require the same discipline on a much larger scale. Unlike an airline, a distribution company operates an essential network monopoly. Its customers cannot simply choose not to consume electricity, while the operator cannot freely choose whom it will serve or what it will charge.
The first batch comprises FESCO, GEPCO and IESCO, with the government offering between 51 and 100 percent of each company together with management control. Collectively, the three companies serve more than 14 million consumers. Investors may therefore be buying valuable networks and customer bases, but they will also inherit politically sensitive tariffs, service obligations, ageing infrastructure, employee liabilities and a share of a power system burdened by losses and legacy costs.
This is where the experience of K-Electric matters. The mistake in Karachi was not private ownership by itself. The deeper mistake was privatising an integrated monopoly before the regulatory compact governing that monopoly had been made sufficiently complete and credible.
K-Electric did improve some operating indicators after privatisation, particularly transmission and distribution losses. Yet disputes over tariffs, investment, power purchases, government obligations, service quality and ownership have persisted for years. Consumers remain dissatisfied, while investors argue that regulatory and policy uncertainty has impaired the company’s ability to finance long-term investment. Both can be right when the original contract leaves too much to permanent negotiation.
Pakistan should not reproduce that arrangement across the country.
Before bids are evaluated, NEPRA and the federal government must define the business being sold. The buyers need a bankable multiyear tariff framework, clearly specified investment obligations, loss-reduction trajectories, service-quality standards and automatic adjustment mechanisms for costs outside management control. Consumers need enforceable rules governing outages, billing, new connections, safety and compensation. The government must also state which social obligations it will fund rather than quietly transferring them to the utility.
The regulator must be strengthened before ownership changes, not afterwards. Bank privatisation succeeded partly because the State Bank developed the capacity to supervise private institutions operating with public deposits. Electricity requires an equally credible regulator, but the task is harder because each network remains a natural monopoly. NEPRA must have the professional staff, data systems, independence and enforcement powers necessary to distinguish legitimate returns from monopoly extraction, and genuine inefficiency from costs imposed by government policy.
The structure of the business also requires attention. Pakistan’s law already distinguishes electricity distribution from electricity supply, but the separation remains largely incomplete in practice. The network and retail businesses should be operationally and financially ring-fenced.
The wires company should remain a regulated monopoly. It would maintain the network, provide connections, meter electricity and offer non-discriminatory access to all licensed suppliers. Its income should come from transparent use-of-system charges and an allowed return tied to efficient investment and performance. Opportunities such as leasing rights-of-way, improving metering and developing network services may supplement that income, but the core return must arise from operating a reliable and efficient grid.
The supply business is where competition can gradually be introduced. Competitive suppliers should contract with generators and traders, pay regulated transmission and distribution charges, and offer consumers different combinations of price, duration, reliability and risk. The supplier of last resort would continue to serve consumers who do not switch or who are not yet eligible for competition.
This transition should begin with large industrial and commercial consumers rather than an immediate attempt to create mass retail competition. The eligibility threshold can then be reduced as settlement systems, metering, supplier collateral requirements and consumer-protection mechanisms mature. Declaring a competitive market before these systems exist would merely create financial intermediaries without creating real competition.
The most difficult issue is not ownership. It is the allocation of legacy costs.
Pakistan’s electricity tariff carries capacity charges, cross-subsidies, historical inefficiencies and social obligations accumulated over decades. If competitive suppliers are allowed to take the best-paying consumers without contributing to these costs, the residual utility will be left with vulnerable consumers and an increasingly unviable balance sheet. Competition would then accelerate the sector’s financial collapse rather than resolve it.
Any consumer leaving the regulated supplier must therefore continue to pay a transparent share of unavoidable network, stranded and transition costs. At the same time, subsidies for low-income households should be explicitly budgeted and targeted instead of being concealed within commercial and industrial tariffs. Social policy is a government responsibility. It should not be disguised as utility pricing and then left unpaid.
Investor interest from Pakistan, Saudi Arabia, Türkiye or China is encouraging, but interest is not proof of a workable transaction. Serious investors will test the durability of the tariff, the treatment of losses, the independence of the regulator, the enforceability of government commitments and their ability to recover capital over a long investment horizon. A high bid achieved by postponing these questions would be a fiscal illusion.
The government must also prevent the privatisation process from recreating concentration at a national level. The physical networks will remain regional monopolies, but competitive supply should eventually be capable of crossing those regional boundaries. Ownership rules must therefore prevent a small group from controlling several networks while also dominating electricity supply.
The test of this privatisation will not be the sale proceeds. It will be whether the transaction produces sustained investment, lower efficient losses, better service and a credible path towards competition without transferring hidden fiscal liabilities back to the state.
Pakistan should sell a clearly defined and properly regulated business. It should not sell an unresolved political bargain and call the change of ownership reform
Copyright Business Recorder, 2026
Ali Khizar is the Director of Research at Business Recorder. His Twitter handle is @AliKhizar