Pakistan has once again placed the privatization of electricity distribution companies (DISCOs) at the heart of its power sector reform agenda. The government’s decision to privatize Islamabad Electric Supply Company (IESCO), Gujranwala Electric Power Company (GEPCO) and Faisalabad Electric Supply Company (FESCO) is based on the belief that private ownership can improve efficiency, reduce losses, attract investment and ease the growing financial burden created by struggling DISCOs. Given the sector’s persistent financial and operational challenges, the rationale for privatization is understandable.
The proposed privatization of DISCOs is also part of Pakistan’s broader power sector reform programme, supported by the IMF, to improve efficiency and restore financial sustainability. Yet the debate has focused largely on whether these utilities should be privatized. That, however, is the wrong question. International experience suggests that privatizing electricity distribution is neither a guaranteed success nor an inevitable failure. Its outcomes depend less on ownership than on the quality of governance. The real question, therefore, is whether NEPRA, Pakistan’s power sector regulator, has the independence, legal authority and technical capacity to regulate privately owned electricity monopolies effectively.
Simply put, privatization changes ownership, whereas governance determines outcomes. Ownership determines who controls an enterprise, while governance determines how it is managed, regulated and held accountable. In the electricity sector, governance has two equally important dimensions. The first is corporate governance within the utility itself, including professional management, accountable boards, financial discipline and operational efficiency. The second is regulatory governance, comprising an independent and technically capable regulator, transparent tariff-setting, enforceable contracts, effective consumer protection and insulation from political interference. Privatization succeeds only when both forms of governance work together. Without these foundations, privatization changes ownership—but not outcomes.
Pakistan has had mixed success with the privatization of state-owned enterprises. Electricity distribution, however, is fundamentally different because it is a natural monopoly. Unlike telecommunications, aviation and many other industries, consumers cannot choose between competing electricity distributors because building parallel networks of feeders, substations, transformers and distribution lines would be economically inefficient. Because electricity distribution is a natural monopoly, the competitive pressures that normally discipline private firms are absent. In such markets, regulation effectively substitutes for competition. Consequently, a utility’s performance depends less on who owns it than on the quality of governance and regulatory oversight.
Private ownership can create stronger commercial incentives to improve efficiency, reduce losses and invest in better services. But incentives alone are not enough. A private monopoly operating under weak regulation can be no more efficient or accountable than a public one. While investors seek reasonable returns, consumers expect reliable and affordable electricity. For consumers, the success of privatization will be judged not by who owns the utility, but by fewer outages, accurate bills, timely new connections and better customer service. Balancing these interests requires institutions that enforce contracts, regulate performance and protect consumers. Privatization, therefore, should be seen as a tool for reform, not reform itself.
Pakistan’s own experience reinforces this point. Since privatization, K-Electric has invested in network modernization and introduced digital systems. Yet disputes over tariffs, investment commitments, regulatory approvals and service quality have persisted. The lesson is clear: changing ownership alone cannot overcome weak institutions.
The international evidence reaches the same conclusion. A World Bank study of 116 electricity distribution utilities across ten Latin American countries found that privatization significantly improved labour productivity, reduced technical and commercial losses, and enhanced service quality, with most of these improvements occurring during the transition period. The study also found that improvements beyond the transition period were much more modest, suggesting that ownership change alone may not automatically deliver sustained improvements.
The experiences of the United Kingdom, Turkey and Delhi reinforce this broader lesson. The United Kingdom established a strong regulatory framework before privatization. Turkey complemented electricity distribution privatization with an independent regulatory framework, while Delhi complemented privatization with smart metering, significant investments in network modernization and aggressive anti-theft measures. Although different countries adopted different models, the lesson was the same: privatization delivered better outcomes when supported by strong institutions, effective regulation and good governance.
This brings us to the question that should lie at the heart of Pakistan’s power sector reforms: Is Pakistan ready to regulate privately owned electricity monopolies? Once a distribution company is privatized, the government’s role does not end—it changes. Rather than operating the utility, it must ensure that private operators invest, meet service standards, protect consumers and earn profits through efficiency rather than the exercise of monopoly power. Achieving this requires an independent regulator with legal authority, technical capability and institutional autonomy to enforce the rules consistently.
Pakistan has repeatedly attempted to improve the performance of electricity distribution companies through restructuring, governance reforms and performance-based management. Although these initiatives have produced some gains, they have not fully resolved the sector’s underlying challenges. As the country moves ahead with privatization, international experience offers a clear lesson: attracting private investment is only one part of the solution. A stronger regulatory framework is essential if privatization is to deliver lasting improvements in efficiency, investment and consumer welfare.
Pakistan’s power sector today is far more complex than when NEPRA was established. Privatization, the Competitive Trading Bilateral Contract Market (CTBCM), renewable energy integration, distributed generation, battery storage, smart grids, digitalization, cybersecurity and integrated energy planning have fundamentally changed the nature of electricity regulation. An independent regulator remains the cornerstone of effective regulation, but independence alone is not enough. NEPRA also needs strong technical capability, relevant professional experience and multidisciplinary expertise to address these interconnected challenges and make timely, evidence-based decisions.
NEPRA’s composition should evolve to match the growing complexity of the power sector. This may require reviewing the NEPRA Act to broaden the Authority’s composition so that it collectively brings together the multidisciplinary expertise needed to regulate a modern electricity sector. Only then can NEPRA effectively regulate privately owned monopolies, respond to evolving market reforms, balance the interests of investors, utilities and consumers, and deliver timely, evidence-based and technically sound decisions in the public interest.
Pakistan’s electricity sector suffers less from an ownership problem than from a governance problem. Privatization can bring fresh capital, modern technology and stronger commercial incentives, but only effective governance can sustain those gains. The success of reform should not be measured by the number of DISCOs privatized, but by whether electricity becomes more reliable, utilities become financially sustainable and consumers receive better service at a reasonable cost. Ultimately, privatization changes ownership; governance determines outcomes. Without strong governance, privatization merely changes the owner of the monopoly. With strong governance, it transforms the performance of the monopoly.
The writer is an economist. The views expressed are personal. He can be reached at shafqat2567@gmail.com