Provincial DISCOs: Pakistan's Power Sector Cannot Afford This Devolution

The Problem, Stated Plainly

The notion that handing Pakistan's perennially loss-making electricity distribution companies (DISCOs) to provincial governments will somehow 'save' the power sector is not merely optimistic; it is a dangerous fiscal fantasy. While the appeal of decentralization, with its promise of local accountability and improved governance, is undeniable, the reality on the ground suggests a far more perilous outcome. Pakistan's power sector is already teetering on the brink, burdened by a circular debt that has become a sovereign-level crisis. Introducing a fragmented ownership structure without first addressing fundamental regulatory, technical, and financial deficiencies at both federal and provincial levels is akin to prescribing a potent but untested drug to a critically ill patient. The outcome will not be recovery, but an accelerated descent into bankruptcy, with provinces ill-equipped to manage complex grids and highly susceptible to weaponizing tariff subsidies for short-term electoral gains. This move, far from curbing power theft, risks institutionalizing it through political patronage and further eroding the financial discipline essential for a viable energy future. The federal government's current burden will simply be diffused, not dissolved, creating multiple new points of fiscal leakage and complicating any future attempts at systemic reform.

Devolution Without Reform Is a Recipe for Fiscal Catastrophe

The core argument for provincializing DISCOs rests on the flawed premise that proximity automatically translates into efficiency and accountability. While local ownership can, in theory, foster better oversight, Pakistan's current institutional landscape presents a stark counter-narrative. The provinces, despite their increasing fiscal space post-18th Amendment, have not consistently demonstrated the capacity or political independence required to manage highly technical and financially complex entities like DISCOs. The power sector's circular debt, which has ballooned to an estimated PKR 3.5 trillion by the end of Fiscal Year 2026 (Ministry of Finance, 2026), is not merely an issue of theft; it is a systemic failure rooted in under-recovery, inefficient generation, and poorly targeted subsidies. Handing over DISCOs to provinces without first establishing robust, independent provincial regulatory authorities, depoliticized tariff determination mechanisms, and significant technical capacity building will only fragment this crisis. Each province would inherit a portion of the existing debt, along with the operational losses, and face immense political pressure to maintain low tariffs or offer exemptions, especially in the run-up to elections. This would inevitably lead to further accumulation of losses, which would then either be absorbed by provincial exchequers – straining already tight budgets – or eventually revert to the federal government through various bailout mechanisms, thus exacerbating the sovereign circular debt. The experience of India's State Electricity Boards (SEBs) in the 1990s offers a cautionary tale, where political interference in tariff setting and operational management led to massive losses and near-collapse of the state power utilities, necessitating significant federal interventions and reforms. Pakistan must learn from these historical precedents rather than repeating them.

The Peril of Politicized Tariffs and Fragmented Regulation

One of the most significant risks associated with provincializing DISCOs is the inevitable politicization of electricity tariffs and subsidies. Currently, the National Electric Power Regulatory Authority (NEPRA) sets uniform tariffs across the country, aiming for cost recovery and minimizing distortions. While this system has its flaws, it provides a degree of insulation from local political pressures. Once DISCOs fall under provincial control, the temptation for provincial governments to manipulate tariffs for electoral advantage will be immense. Imagine a scenario where a provincial government, facing an election, decides to freeze or reduce electricity tariffs for certain constituencies, or offers blanket subsidies without a clear, sustainable funding mechanism. This would immediately undermine the financial viability of the provincial DISCO, forcing it to borrow more, delay payments to generation companies, and ultimately contribute to the very circular debt it was supposed to alleviate. The average Transmission and Distribution (T&D) losses across DISCOs stood at 18.7% in FY2025 (NEPRA, 2025), a figure that includes both technical losses and theft. While some provinces have higher loss rates, the solution is not simply to transfer ownership but to empower a depoliticized management with the tools and autonomy to enforce collection and combat theft. Comparative examples from other developing economies, such as Brazil's decentralized power sector, show that successful devolution requires robust, independent sub-national regulatory bodies with clear mandates and financial autonomy. Without such institutions, provincial ownership can lead to regulatory capture, inconsistent policy implementation, and a race to the bottom in terms of financial discipline. Furthermore, the technical capacity to manage complex power grids, implement smart metering, and conduct sophisticated load forecasting is largely centralized at the federal level. Provinces currently lack the specialized engineering and financial talent pools to effectively oversee and operate these utilities, risking operational breakdowns and further service degradation.

"Devolving DISCOs without first building robust provincial regulatory capacity and depoliticizing tariff mechanisms is not decentralization; it's an abdication of fiscal responsibility that will shatter Pakistan's energy future."

The Counterargument — And Why It Fails

The most compelling counterargument posits that provincial ownership will foster greater local accountability, enabling provincial governments to directly address power theft and improve collection rates within their jurisdictions. Proponents argue that local politicians and administrators are better positioned to understand ground realities, engage with communities, and implement targeted anti-theft campaigns. They suggest that the current centralized system is too distant and bureaucratic to effectively tackle localized issues, leading to the pervasive problem of non-payment and theft that plagues DISCOs. Furthermore, some argue that the 18th Amendment's spirit of devolution demands that provinces take greater ownership of public services, including electricity distribution, to truly empower local governance. They point to the potential for provinces to innovate with localized solutions, tailored to their specific socio-economic contexts, rather than relying on a one-size-fits-all federal approach. However, this argument, while appealing in its democratic ideals, fails to account for the harsh realities of Pakistan's political economy and institutional capacity. The assumption that local politicians will act as responsible stewards of public utilities, prioritizing long-term financial health over short-term electoral gains, is fundamentally optimistic. Instead, the historical evidence from other sectors, and indeed from the power sector itself, suggests that local political interference often exacerbates, rather than resolves, issues like tariff collection and theft. Without strong, independent regulatory bodies at the provincial level, insulated from political pressures, the system will be ripe for abuse. Moreover, the technical and financial complexities of managing a modern power grid are beyond the current administrative and technical capabilities of most provincial governments. The specialized engineering, financial modeling, and operational management expertise required to run DISCOs efficiently are scarce resources, largely concentrated at the federal level or within the existing DISCO structures. Transferring these entities without a massive, sustained investment in provincial capacity building and institutional reform would be a recipe for operational chaos and financial ruin. The federal government's annual subsidy bill for DISCOs, estimated at PKR 450 billion in FY2025 (Power Division, 2025), would simply be transferred, or worse, multiplied, as provinces struggle to manage losses and resort to their own forms of fiscal indiscipline.

What Must Actually Happen — A Concrete Agenda

Instead of a hasty and ill-conceived devolution, Pakistan needs a phased, evidence-based approach to power sector reform that prioritizes institutional strengthening and financial discipline. Civil servants, as agents of change, can advocate for and implement these critical steps. The current framework does not yet provide civil servants with the full autonomy and tools needed for depoliticized management; introducing these reforms would give officers the means to deliver a sustainable power sector. This is not about centralizing power, but about creating a functional, accountable system at every level.

Conclusion

The allure of decentralization in Pakistan's power sector is understandable, but its implementation without foundational reforms is a path to fiscal ruin. The current proposal to hand loss-making DISCOs to provinces, while superficially addressing the demand for local control, fundamentally misunderstands the nature of the circular debt crisis and the institutional prerequisites for a functional power market. Provinces, in their current state, lack the technical capacity, regulatory independence, and fiscal resilience to manage these complex entities without succumbing to political pressures that would further destabilize the sector. The solution lies not in a mere transfer of ownership, but in a comprehensive, phased reform agenda that empowers civil servants, strengthens regulatory institutions, depoliticizes tariff mechanisms, and leverages technology to enhance efficiency and accountability. Pakistan's energy future, and indeed its broader economic stability, hinges on the courage to implement these difficult but necessary structural changes, rather than pursuing politically expedient but ultimately self-defeating measures. The time for decisive, evidence-driven policy is now, before the lights go out on Pakistan's economic aspirations.