The caretaker government is contemplating significant changes in response to mounting circular debt and losses in the power and gas sectors in Pakistan.

Two key strategies are under consideration: privatising both power generation (Gencos) and distribution companies (Discos) or transferring management control to private entities for a duration of 20 to 25 years.

This policy shift is driven by the alarming circular debt crisis in the power sector, totaling Rs2.3 trillion, and a staggering Rs2.8 trillion in the gas sector. Combined, this amounts to over $17 billion, endangering sector sustainability.

RELATED STORIES

Energy Minister Muhammad Ali disclosed that the government is considering transferring management responsibilities for four power generation plants and 10 state-run Discos to private entities under long-term concession agreements. Discussions with the World Bank’s International Finance Corporation (IFC) for such agreements are ongoing.

The power generation plants under consideration include the Haveli Bahadur Shah and Balloki power plants, the Guddu power plant, and the Nandipur power plant. The government is exploring options such as transferring Discos to provincial governments, complete privatisation, or management delegation to private investors.

After privatisation or management transfer, uniform tariffs may no longer be mandatory, allowing for varying tariff structures. This move is aimed at reducing government subsidies and losses.

The government is also considering public listings, but only for profitable entities. This shift towards privatisation is seen as a means to spur economic growth, job creation, and increased tax revenues.

Regarding gas availability, the situation is expected to be similar to the previous year, with gas load-shedding planned. Gas tariffs are set to increase, particularly for low-income consumers.

Government-independent power producer (IPP) agreements will be honoured as international investments prevent alterations. Short-term strategies to reduce circular debt include cost reduction measures, extending loan terms, boosting local power generation, and upgrading transmission lines.

The gas sector’s annual losses of Rs350 billion are a significant concern, primarily due to the reliance on imported liquefied natural gas (LNG) procured at a higher cost than what is sold domestically.

In summary, the Pakistani government is considering a major overhaul of the power and gas sectors, with privatisation and management transfers as primary options to address circular debt and losses. These reforms aim to reduce financial burdens, encourage efficiency, and stimulate economic growth, all while ensuring essential services remain accessible to consumers.