Pakistan's Two-Tier DISCO Privatization Plan Unlikely to Cut Power Bills Immediately

The government has proposed a two-tier business model for privatizing Pakistan's electricity distribution companies (DISCOs), separating ownership of the physical distribution network from the business of buying and selling electricity. Under the plan, one private investor would own the distribution infrastructure, while separate private firms would compete to procure and sell power to consumers.

According to the proposal, the winning bidder in the first tier would acquire the distribution company's physical assets, including poles, wires and other network equipment. The government would regulate this infrastructure owner, which would also act as the supplier of last resort, stepping in to ensure supply when competitive suppliers fail to meet their obligations.

In the second tier, private investors known as competitive suppliers would be allowed to enter the market and independently handle electricity procurement, sales, billing and collections. These suppliers would obtain generation capacity and customer portfolios through competitive auctions rather than buying the distribution infrastructure itself.

The plan initially covers the Faisalabad, Gujranwala and Islamabad distribution companies, and remains subject to approval by the Power Sector Reforms Steering Committee and the federal cabinet. Officials caution that the changes will not bring immediate relief on bills, as consumers would continue paying roughly Rs. 17 per unit to cover payments for unused generation capacity.

A Privatization Commission official said the main objective is to keep distribution infrastructure under regulation while opening procurement and sales to private competition, which could eventually allow suppliers to offer rates below government-approved tariffs. The arrangement would also end the Central Power Purchasing Agency's role as the sole electricity buyer and introduce multiple private suppliers into the market.

Under the proposed mechanism, once the Faisalabad Electric Supply Company (FESCO) is privatized, the CPPA would auction the generation capacity allocated to it, along with its customer portfolio, to private suppliers. Any tariff relief would therefore likely emerge over the medium to long term rather than at the point of privatization.