This is the eighth article in a ten-part series on Pakistan’s state-owned enterprises and privatisation. The previous seven examined governance, privatisation, successful and failed transactions, and the cases of Pakistan Railways and PIA. This article draws together the lessons; the final two set out the way forward.
The cost of delayed reforms
Before drawing lessons, it is worth pausing over the bill.
Pakistan has delayed reform of its commercial state enterprises since the late 1980s. No audited figure captures the cumulative cost, spread across losses, subsidies, guarantees, debt takeovers, unpaid receivables, circular debt and poor service. Any three-decade estimate is approximate.
The case studies provide only a partial picture. Pakistan Railways has absorbed more than Rs 2 trillion over roughly three decades.
PIA accumulated liabilities and losses exceeding Rs 800 billion before restructuring. Pakistan Steel has cost hundreds of billions through losses, debt, guarantees and upkeep of a closed plant.
K-Electric’s privatisation did not end public exposure; subsidies, disputed receivables and other claims approached a trillion rupees in its last published accounts.
The energy sector adds a larger burden. Power-sector circular debt stands at about Rs 2 trillion, after considerable reduction, but that is only a point-in-time stock. Liabilities have repeatedly been shifted, refinanced or settled through budgets, bank financing and sukuk.
Gas circular debt has also grown to around Rs 3 trillion, driven by delayed tariffs, high unaccounted-for-gas losses, unpaid subsidies and weak recoveries.
Not all of this is SOE management failure. Flawed power contracts, policy-driven tariffs and non-payment by public bodies are failures of the state. But inefficient generation, transmission and distribution companies, weak boards, political interference and the absence of commercial accountability have greatly magnified the cost.
International development institutions, including the Asian Development Bank, have placed the annual fiscal burden of Pakistan’s SOEs at around 1.5 to 2 percent of GDP in their past assessments.
Applied cautiously across three decades of rising nominal GDP, these estimates suggest a cumulative direct fiscal cost well above Rs 15 trillion. Precision is impossible, but the order of magnitude is clear.
The wider economic cost is greater still. Federal commercial SOEs hold assets of about Rs 38 trillion — close to one-third of GDP — yet earn inadequate returns. Even a five-percentage-point improvement would create roughly Rs. 1.9 trillion in additional annual value.
Beyond that lie the gains from reliable energy, efficient rail freight, better logistics, stronger exports, investment and employment. The real cost is therefore not only what the state pays, but what these national assets fail to produce.
The contrast is visible in banking. UBL was privatised in 2002 for Rs 12.35 billion; in the first six months of 2026, it earned almost Rs 86 billion after tax. Not every SOE can replicate UBL’s performance after privatisation, but the comparison shows how ownership, incentives, regulation and management can turn a state asset from a consumer of public money into a creator of value.
Lessons on governance
Four conclusions stand out.
First, the framework retains fatal design flaws identified earlier in this series. Board nominations remain open to political and bureaucratic influence; ex-officio ministry directors weaken independence; and directors have little skin in the game when value is destroyed. Unfunded public-service obligations and weak consequence management further dilute accountability. The SOE Act 2023, ownership policy and Central Monitoring Unit are useful architecture, but these flaws can reduce reform to paperwork.
Second, corporatisation is the gateway to reform. Every commercial enterprise needs a separate legal identity, competent board, proper accounts, business plan and clear responsibility. Pakistan Railways remains an attached department outside the Companies Act and federal commercial SOE portfolio, without audited corporate statements. It was excluded even when four other entities were brought within the SOE framework in November 2023.
Third, boards and management must face consequences. Appointments should follow a transparent, capability-based nomination process. Directors and chief executives should have measurable performance appraisals; continuation and compensation should depend on results; and persistent failure, conflicts or interference should lead to removal and disqualification. Protection from political removal cannot become immunity from accountability.
Fourth, timely audited accounts and hard budget constraints are indispensable. Railways has no corporate accounts; several energy companies report years late; and K-Electric’s statements after FY2023 remain unpublished. Unfunded obligations, guarantees and repeated bailouts conceal failure and shift its cost to taxpayers. Disclosure, explicit funding of policy obligations and an end to open-ended support are the foundations of accountability.
Lessons on Privatisation
Seven lessons emerge from Pakistan’s own experience.
Sponsor quality matters as much as price. Essential-service entities need buyers with financial strength, management depth, integrity and capacity to invest. Prior sector experience helps, but credible sponsors can build capability when regulation is strong. Banking privatisation benefited from the State Bank’s oversight. K-Electric went to sponsors with no relevant experience while NEPRA lacked the capacity to regulate effectively. Weak sponsorship and weak regulation are a lethal combination.
Buyer transparency must continue until completion. Any change in the controlling party must be disclosed, justified and approved. The substitution of KES Power in the KESC transaction remains insufficiently explained two decades later. Beneficial ownership and funding sources must be clear.
Agreements must also be enforced after closing. Pakistan has often completed sales without holding buyers accountable for payment and performance obligations. Failure to enforce K-Electric’s implementation agreement, and to recover PTCL’s outstanding balance of about $800 million, shows how weak post-transaction enforcement can undermine privatisation.
Regulatory capacity must be strengthened alongside privatisation. Pakistan cannot postpone DISCO transactions while waiting for a perfect regulator, but NEPRA must be urgently upgraded to be able to set credible tariffs, enforce service standards, protect consumers and prevent public inefficiency from becoming private extraction.
Preparation determines value. In October 2024, PIA attracted one bid of Rs. 10 billion. Fourteen months later, three bidders competed, the winning offer for 75 percent reached Rs 135 billion against a Rs 100 billion reserve price, with a total transaction commitment of Rs 180 billion. The airline had not suddenly become excellent; its balance sheet, tax dispute resolution, route access and transaction structure had been made investable.
Competition strengthens price and legitimacy. Three credible bidders are preferable, but not an inflexible rule; specialised transactions may attract fewer. What matters is genuine contestability, transparent pre-qualification, independent valuation and a clear decision when competition is weak.
Finally, success must be judged by whether public fiscal exposure ends and value returns to the state. Banking passed that test: support ended, profitability and tax payments rose sharply, and the state earned tax revenues many times the equity value sold. K-Electric did not. Every transaction should define retained liabilities, transferred risks, permitted subsidies and funding for public-service obligations.
Pakistan does not lack knowledge of what works. Nor, as PIA shows, does it lack institutional capability. What it lacks is the discipline to apply them consistently, at scale, and without retreat at the first sign of resistance.
The final two articles will set out what must now change in the process, the institutions, the law and the political economy of reform.
Copyright Business Recorder, 2026
The writer, a former managing partner of a leading professional services firm, is a public sector governance and public financial management specialist and has done extensive work on governance in the public and private sectors. He posts on X @Asad_Ashah