Deregulation Before Privatisation: Fixing Pakistan’s Power Market
Prime Comment #46
The Government of Pakistan has begun the phased privatisation of three state-owned power distribution companies to minimise sector losses and address recurring debt. Privatisation can certainly enhance efficiency when firms operate in a competitive and well-functioning market. However, Pakistan’s energy sector continues to be operated in a single-buyer structure, with strict administrative controls over pricing, market access, and electricity transactions. This raises a critical question about the order of reform: should the power sector move towards privatising distribution companies before creating the conditions necessary for competition? PRIME’s (2024) report “Breaking Monopolies Deregulation Before Privatisation” argues that deregulation should proceed privatisation. Without market liberalisation and required market reforms, privatisation risks replacing public monopolies with private ones, leaving consumers with limited choices and weak competitive pressures.
The current structure of the power sector limits the scope for competition. Under the single buyer model, electricity procurement and transactions remain highly regulated. Meanwhile, the Competitive Trading Bilateral Contract Market (CTBCM) has been delayed; market entry and bilateral trading remain constrained by transmission restrictions, poor metering infrastructure, and regulatory barriers. The latest circular-debt numbers strengthen the case for structural reform. Despite government subsidies of Rs 302 billion, and rescheduling of circular debt through banks, the flow of circular debt in the power sector surged by Rs 364 billion in FY2025-26. While weak recoveries and DISCO inefficiencies account for a large portion of this rise, the continuation of these issues illustrates the challenges of depending on fiscal support without addressing the market structure and incentives that drive sector inefficiencies.
K-Electric is an example of privatisation without market reforms. Despite being privatised, it continues to operate in a controlled market. Its latest issue of non-payments is linked to the delays in finalising the multi-year tariff, further highlighting the significance of regulatory certainty. The K-Electric case rightly demonstrates the risks of privatisation without adequate sector deregulation. Privatisation should complement market reforms, rather than substituting them. There is a need to accelerate CTBCM, graduate NEPRA into an independent market regulator, remove unnecessary market entry barriers, and improve transmission and metering infrastructure. NEPRA should focus more on enabling competition, maintaining transparency, and deterring anti-competitive practices, rather than relying exclusively on administered pricing. Privatisation alone cannot bring the efficiency gains, investment, and consumer benefits that Pakistan’s power sector demands unless a competitive and stable market structure is established.