- Recent finance ministry report highlights dire straits of power sector.
- Discos face high-risk factors contributing to operational inefficiency.
- Debt driven by Discos’ inability to recover revenue from consumers.
ISLAMABAD: Pakistan’s power distribution companies (Discos) are facing a financial crisis, haemorrhaging around $1 billion annually due to rampant line losses, theft, and inefficiencies, The News reported on Thursday.
A recent report from the Ministry of Finance, prepared to fulfill the International Monetary Fund’s (IMF) requirements, highlighted the dire straits of Discos as they face a confluence of high-risk factors that contribute to operational inefficiency and an entrenched circular debt problem.
These distribution companies include Islamabad Electric Supply Company (IESCO), Lahore Electric Supply Company (Lesco), Multan Electric Power Company (Mesco), Hyderabad Electric Supply Company (Hesco), Gujranwala Electric Power Company (Gesco), Quetta Electric Supply Company (QESCO), and Peshawar Electric Supply Company (Pesco).
This debt is largely driven by the inability of Discos to recover sufficient revenue from consumers to cover the costs of electricity generation and distribution.
Poor collection rates, high transmission and distribution losses, delayed government subsidies, and infrequent tariff adjustments create a cycle of financial strain.
According to the report, this circular debt ultimately hinders Discos’ capacity to invest in infrastructure, maintain equipment and improve operational efficiency, perpetuating a cycle of inefficiency and financial instability.
The core of these challenges is the high levels of operational and credit risks inherent in Discos’ business model.
Operational inefficiencies, such as outdated infrastructure, high distribution losses and widespread theft, amplify the financial burden, while credit risk arises from large receivables, poor recovery rates and delayed government subsidies.
This dual threat limits the cash flow needed for day-to-day operations and for essential investments in advanced metering infrastructure (AMI) and system upgrades.
Additionally, frequent government interventions and delays in tariff adjustments prevent Discos from charging consumers the true cost of electricity, widening the revenue gap.
Consequently, the Discos find themselves in a perpetual cycle of debt and inefficiency, which impacts their financial stability and threatens the broader energy sector’s sustainability in Pakistan, the report stated.
Several SOEs incurred significant losses during FY2024.
The largest loss was reported by the National Highway Authority at Rs295.5 billion, followed by QESCO at Rs120.4 billion, Pesco Rs88.7 billion, Pakistan International Airlines Rs3.5 billion, Pakistan Railways at Rs51.3 billion, Sukkur Electric Supply Company Rs37 billion, Lesco Rs34.5 billion, Pakistan Steel Mills Corp Rs31.1 billion, HESCO Rs 22.1 billion, GENCO-II Rs17.6 billion, IESCO Rs15.8 billion, Pak Post Office Rs13.4 billion, Tesco Rs 9.5 billion, Gepco Rs8.5 billion, GENCO-III Rs7.8 billion and all others cumulatively Rs23.7 billion.
Accumulated losses stand at a colossal Rs5,748 billion with the majority in the past 10 years alone.
The top 15 profit-making entities were led by OGDCL at Rs208.9 billion, Pakistan Petroleum Limited at Rs115.4 billion, National Power Parks at Rs76.8 billion, Govt Holding PVT Limited at Rs69.1 billion, Pak Arab Refinery Company Rs55.0 billion, Port Qasim Authority Rs41 billion, MEPCO Rs31.8 billion, NBP Rs27.4 billion, WAPDA Rs22.2 billion, KPT Rs20.3 billion, PNSC Rs20.1 billion, PSO Rs19.6 billion, State Life Insurance Corp. Rs18.3 billion and PKIC Rs15.2 billion respectively.
Gross revenues of federal State-Owned Enterprises (SOEs) reached Rs13,524 billion, reflecting a 5.2% increase YOY.
Total aggregate profits were Rs820 billion, a 14.61% increase YOY while lossmaking SOEs reported aggregate losses of Rs851 billion, a 14.03% decrease YOY for the 12 months ending June 2024.
These losses include government assistance of Rs782 billion in subsidies and Rs367 billion in grants added to revenues. Further, removing the PSWF entities the net aggregate losses after offsetting with profit-making entities comes to Rs521.5 billion.
The book value of assets rose by 6.37% YOY to Rs38,434 billion, while liabilities increased by 6.7% YOY to Rs32,571 billion, resulting in net equity of Rs5,863 billion, a 4.47% increase YOY. Low free cash flow and high Weighted Average Cost of Capital ranging from 17% to 22% led to a low return on equity of -0.5% and a return on invested capital of 3.4%.
