PC proposes major power distribution reforms ahead of DISCO

Privatisation Commission seeks to transfer power purchase contracts and capacity-payment obligations to private suppliers, introduce performance-based regulation and gradually open electricity supply to competition The Privatisation Commission has proposed restructuring Pakistan's electricity distribution sector by separating network operations from power supply businesses, transferring legacy generation contracts and capacity-payment obligations to private suppliers, and introducing performance-based regulation ahead of distribution company (DISCO) privatisation, Business Recorder reported. According to its policy paper, titled Post-Privatisation Regime for Power Distribution Companies, the proposed framework would divide electricity distribution into four functions: Distribution Network Operators (DNOs), Competitive Suppliers (CSs), Suppliers of Last Resort (SoLR) and separately managed ancillary businesses. The commission has argued that privatisation alone would not resolve the power sector's structural problems, including circular debt, high tariffs, declining grid demand, capacity payments and operational inefficiencies. Under the proposed arrangement, DNOs would continue to operate distribution networks as regulated monopolies under the National Electric Power Regulatory Authority (NEPRA), while licensed private suppliers would gradually compete in electricity procurement, billing, collections and customer management. A central proposal involves transferring existing power purchase agreements and their associated capacity-payment obligations from the Central Power Purchasing Agency-Guarantee (CPPA-G) to competitive suppliers, together with corresponding customer portfolios. The commission said the arrangement would make suppliers responsible for procurement costs and commercial risks, although existing generation contracts would continue to be honoured during the transition. Protected consumers would retain regulated tariff protection, while existing cross-subsidies would remain in place to prevent additional fiscal liabilities and ensure that suppliers also serve subsidised customers. The framework also proposes appointing a Supplier of Last Resort in each distribution region to maintain electricity supply if a competitive supplier defaults, withdraws or becomes unable to operate. Distribution companies would be required to provide licensed suppliers with fair and non-discriminatory access to electricity networks and essential services. The commission has recommended replacing the existing asset-based regulatory model with a performance-oriented system linking utility returns and penalties to reliability, billing accuracy, complaint resolution and connection timelines. Citing NEPRA's State of Industry Report 2025, the paper noted that consumer complaints increased to 5.7 million in FY2025, while 106,895 consumers who had paid for new electricity connections were still awaiting service. The pending connections represented more than 1,021 megawatts of unserved load. The commission also identified declining electricity demand as a major financial challenge, particularly as higher-paying consumers increasingly adopt solar power and other self-generation options. It warned that falling grid consumption was forcing fixed costs and capacity payments to be recovered from a smaller customer base, contributing to higher per-unit tariffs and encouraging further movement away from the grid. The paper also raised concerns over possible misuse of protected-consumer subsidies. Of approximately 34.3 million domestic electricity consumers, only 2.2% were on Time-of-Use tariffs, prompting the commission to recommend examining whether multiple electricity connections were being used to remain within subsidised consumption thresholds. The commission called for stronger regulatory independence, predictable multi-year tariffs and clearer allocation of commercial risks to attract private investment. It recommended implementing reforms in phases, with key regulatory arrangements settled before DISCO ownership transfers to provide investors with greater certainty over future revenues, liabilities and investment requirements. However, the paper acknowledged that some underlying datasets and planning tools were unavailable during its preparation, meaning important assumptions relating to capacity allocation, tariff impacts and the transition process would require further validation before implementation.