CSS Current Affairs | Role of Public Sector in Resolving the Energy Crisis in Pakistan with Reference to Public-Private Partnership models
The following assignment question for CSS Current Affairs is solved by Ronra Kasi under the supervision of Howfiv’s Pakistan Affairs and Current Affairs Coaches: Miss Iqra Ali and Sir Ammar Hashmi. She learnt how to attempt 20 marks question and essay writing from Sir Syed Kazim Ali, Pakistan’s best CSS and PMS English essay and precis teacher with the highest success rate of his students. This solved question is attempted on the pattern taught by Sir to his students, scoring the highest marks in compulsory and optional subjects for years.
Outline
1-Introduction
2-Current Dynamics of Pakistan’s Energy Crisis
- The Circular Debt Choking the System
- High Line Losses in Public DISCOs
- Unviable Capacity Payments to IPPs
- Over-Reliance on Expensive Imported Fuels
3-Evolving Role of the Public Sector in the Energy Domain
- Policy Formulation: Setting the Direction
- Regulatory Oversight: NEPRA as the Watchdog
- Sovereign Guarantees: De-Risking Private Investment
- Infrastructure Provision: The Grid as Public Property
4-Resolving the Crisis Through PPP Models
- BOOT Model: Build, Own, Operate, Transfer
- Management Contracts: Fixing DISCOs Without Full Privatization
- Competitive IPP Framework: From Fixed Tariffs to Bidding
- CTBCM and Merchant Plant Models: A Multi-Buyer Market
5-Critical Challenges in Implementing Energy PPPs
- Weak Legal and Institutional Frameworks
- Political Instability and Arbitrary Policy Changes
6-The Way Forward: Reforming the Public-Private Nexus
- Unbundle and Privatize High-Loss DISCO
- Prioritize Local Fuel and Green Energy PPPs
Answer to the question
Introduction
Pakistan is facing one of the worst energy crises in its history. Electricity bills are skyrocketing, load-shedding persists in many areas, and the power sector is drowning in debt. The government alone cannot fix this problem because it simply does not have enough money. Public Distribution Companies (DISCOs) are draining hundreds of billions of rupees every year through theft, poor billing, and idle power plants. In particular, according to NEPRA’s data, public Distribution Companies (DISCOs) caused Rs 472 billion in losses to the national treasury in FY2024-25 alone. However, the public sector is not without a role; it can act as a regulator, policymaker, and enabler. Provided that, the real solution lies in building a strong Public-Private Partnership (PPP) framework where the government sets the rules and the private sector brings in the capital and efficiency. In a word, the public sector cannot solve the energy crisis alone due to fiscal constraints, but it can catalyze a solution through robust PPP frameworks.
Current Dynamics of Pakistan’s Energy Crisis
- Circular Debt Choking the System
To begin with, circular debt is the biggest financial cancer in Pakistan’s power sector. It begins when the government delays subsidy payments, DISCOs cannot pay power producers, and power producers cannot pay fuel suppliers, creating a cascade of unpaid obligations throughout the entire energy chain. The power sector circular debt crossed Rs2.3 trillion by mid-2025, and the combined debt across oil, gas, and power sectors stands even higher. To manage this, the government borrowed over a trillion rupees from commercial banks, repayable through a per-unit surcharge on electricity consumers, effectively making ordinary people pay for institutional failure.
- High Line Losses in Public DISCOs
At the same time, Pakistan’s public distribution companies are losing enormous amounts of electricity before it even reaches consumers. According to NEPRA’s Performance Evaluation Report for FY2024-25, average transmission and distribution losses across DISCOs remained significantly above the regulator’s allowed benchmark. Moreover, companies like PESCO in Peshawar and SEPCO in Sukkur recorded losses exceeding one-third of all electricity entering their networks, meaning a massive share simply disappears through theft, ageing wires, and billing fraud. Thus, these losses translate directly into hundreds of billions in unrecoverable revenue, feeding the circular debt cycle year after year.
- Unviable Capacity Payments to IPPs
Moreover, Pakistan is paying billions of rupees to power plants that are not even producing electricity. Capacity payments, fixed charges paid to Independent Power Producers (IPPs) regardless of whether their plants run, reached PKR 979 billion in FY2024-25 and are paid only to 33 companies, making up the largest single component of the consumer electricity tariff. Pakistan has far more installed generation capacity than it uses, yet consumers are billed for all of it. These “take-or-pay” contracts, many dating back to the Power Policy of 1994 and indexed to the US dollar, have created a permanent fiscal drain that worsens every time the rupee falls against the dollar.
- Over-Reliance on Expensive Imported Fuels
Last, Pakistan’s energy mix is dangerously dependent on thermal power, which requires expensive imported fuel. Almost 57.5% of total installed capacity runs on imported oil, gas, or coal, making electricity prices acutely sensitive to global commodity markets and exchange rate fluctuations. Every time the rupee depreciates, fuel import bills rise, and consumer tariffs follow. A significant portion of what consumers pay today is not for the electricity itself but for debt surcharges and fuel hedging built into tariff structures. Therefore, this imported fuel dependency is not just an economic problem; it is a national security vulnerability.
Evolving Role of the Public Sector in the Energy Domain
- Policy Formulation: Setting the Direction
Compounding this further, the government’s most important role is to set a clear, long-term energy policy that tells investors where the country is going. Pakistan’s Alternative and Renewable Energy (ARE) Policy 2019 is the primary example of this; it sets legally binding national targets for renewable energy by 2025 and 2030, replacing the expired RE Policy 2006. Crucially, the policy shifted the government’s approach from providing direct financial incentives to creating competitive pricing mechanisms, a deliberate move from state provider to market architect. Thus, this policy framework is the foundation upon which private investors make long-term capital decisions, and without it, no PPP model can function with confidence.
- Regulatory Oversight: NEPRA as the Watchdog
Along the same lines, NEPRA (National Electric Power Regulatory Authority) is the government’s tool for keeping both public and private players accountable. Under the NEPRA Act 1997, it is legally required to annually report on the state of the entire power sector to the Federal Government and the Council of Common Interests. NEPRA sets tariffs, monitors DISCO performance, approves investment plans, and can penalise underperformers. In FY2024–25, it went as far as challenging the Power Division’s own data on DISCO losses, directing its technical team to independently verify figures it believed were inaccurate. As a result, this kind of independent regulatory scrutiny is precisely what gives private investors confidence that contracts will be enforced fairly.
- Sovereign Guarantees: De-Risking Private Investment
Further to this, the government uses sovereign guarantees to make Pakistan attractive to private investors who would otherwise consider the country too financially risky. These guarantees, which backed IPP Power Purchase Agreements under international arbitration clauses, were essential in attracting the private capital that built much of Pakistan’s generation capacity in the 1990s and 2000s. However, those same guarantees became a fiscal trap when poorly designed contracts locked in dollar-indexed payments for decades with no performance conditions. The lesson is clear: sovereign guarantees are a necessary PPP tool, but they must come with competitive bidding requirements, output benchmarks, and renegotiation clauses from the outset, not written as open-ended state obligations.
- Infrastructure Provision: The Grid as Public Property
To put it succinctly, the government must maintain and expand the national transmission grid because no private investor will build a power plant if there is no infrastructure to deliver the electricity to buyers. NTDC operates Pakistan’s high-voltage transmission network, which forms the physical backbone over which all private generation must travel. However, NEPRA has criticized NTDC for delays in critical transmission upgrades and noted that major interconnection lines are operating far below their rated capacity. This is a serious structural bottleneck: private renewable energy developers in Sindh and Balochistan cannot reach industrial consumers in Punjab if the grid cannot wheel their power. Public transmission investment is not optional; it is the precondition for private generation investment.
Resolving the Crisis Through PPP Models
- BOOT Model: Build, Own, Operate, Transfer
Accordingly, under the Build-Own-Operate-Transfer (BOOT) model, a private company finances and builds a power plant, operates it commercially until it recovers its investment and profit, and then transfers ownership to the state. To be sure, this is particularly useful for large-scale projects, where the government lacks upfront capital but the asset has long-term national value. Pakistan has already used variations of this model under CPEC for power projects. Therefore, the key reform required is to move away from guaranteed returns toward performance-linked transfer agreements, ensuring the government does not inherit the same capacity payment trap that was in previous IPP contracts.
- Management Contracts: Fixing DISCOs Without Full Privatization
Alternatively, rather than immediately selling DISCOs to private buyers, management contracts allow the government to hand over the day-to-day operations of a DISCO to a private operator while retaining public ownership of the assets. Provided that, this lower-risk model is particularly relevant because provincial governments, including Sindh and Balochistan, have actively refused to absorb high-loss DISCOs like HESCO, SEPCO, and QESCO, citing financial instability. Consequently, a private manager working under performance targets for billing efficiency, loss reduction, and revenue recovery can achieve operational improvements without requiring the politically sensitive step of outright privatization. In short, Pakistan’s Energy Minister announced DISCO privatization efforts beginning in 2025, with management contracts a likely transitional mechanism.
- Competitive IPP Framework: From Fixed Tariffs to Bidding
Together with that, the core reform of the existing IPP model is to replace the system of fixed, negotiated tariffs with open competitive bidding. Certainly, under competitive procurement, multiple private generators submit price offers for power supply contracts, and the lowest viable bid wins, driving generation costs down through market competition. Evidently, this already works in Pakistan’s solar sector, where auctions have delivered prices dramatically below those of earlier negotiated contracts. Moreover, the government has begun renegotiating existing PPAs with underperforming IPPs and has proposed converting several to take-and-pay arrangements, meaning the state only pays for electricity actually produced. In a word, institutionalizing competitive bidding from the start would prevent future capacity payment crises.
- CTBCM and Merchant Plant Models: A Multi-Buyer Market
Over and above that, the most transformative PPP reform is the Competitive Trading Bilateral Contract Market (CTBCM), which would allow private power producers to sell electricity directly to large industrial and commercial consumers using the public grid as a neutral delivery network. In addition, Pakistan launched formal CTBCM stakeholder consultations in 2025 under ISMO, initiating a process to replace the current single-buyer CPPA-G model. As a consequence, under the new structure, generators, DISCOs, and eligible bulk consumers directly negotiate supply contracts at market-determined prices, while CPPA-G becomes a neutral settlement manager rather than a monopoly purchaser. Ultimately, this eliminates structural inefficiency, reduces industrial electricity costs, and accelerates the shift to affordable renewable energy, without requiring additional public expenditure.
Critical Challenges in Implementing Energy PPPs
- Weak Legal and Institutional Frameworks
Aside from this, PPPs can only work if both parties trust that the contract will be honored throughout its lifetime. Unfortunately, Pakistan’s institutional environment makes this trust difficult to establish. Even NEPRA itself had to challenge the Power Division’s reported data on DISCO performance, exposing the weak culture of accountability within public institutions. Furthermore, approved investment plans for network upgrades are routinely not implemented by DISCOs despite regulatory approval and allocated funding. To be sure, the IPP contracts, designed under international arbitration clauses, became instruments of sovereign liability because Pakistan’s domestic institutions lacked the capacity to monitor and enforce agreed performance standards. Therefore, without a stronger contract management infrastructure, new PPP agreements face precisely the same risk.
- Political Instability and Arbitrary Policy Changes
Private investors making twenty-to-thirty-year energy commitments need a stable and predictable policy environment. Pakistan has repeatedly altered tariff structures, renegotiated contracts, and changed regulatory rules in response to political pressures rather than technical or economic logic. Provincial governments have blocked DISCO privatization outright, Sindh refusing to absorb its distribution companies, Balochistan declining responsibility for QESCO, without offering reform alternatives. Each such episode of policy reversal or institutional standoff signals to international investors that contractual obligations may not be durable, raising the risk premium attached to Pakistan and, consequently, the cost of financing every future energy PPP.
The Way Forward: Reforming the Public-Private Nexus
- Unbundle and Privatize High-Loss DISCOs
On the other hand, the worst-performing distribution companies, PESCO, QESCO, SEPCO, and HESCO, cannot be reformed from within the existing public management structure, as decades of evidence confirm. Furthermore, NEPRA’s most recent Performance Evaluation Report explicitly recommends restructuring large DISCOs into smaller, more accountable units and advancing PPP and privatization initiatives as the primary solution. As a consequence, the government must resolve the political deadlock with provincial governments by designing management contract models that protect provincial interests through revenue-sharing arrangements while imposing binding operational performance targets. K-Electric, as a private, vertically integrated utility operating under regulatory oversight, provides a working domestic reference point for what private management of distribution can achieve.
- Prioritize Local Fuel and Green Energy PPPs
Also, all new PPP contracts in the energy sector must be directed exclusively toward generation sources that reduce import dependence and lower per-unit costs. Further to this, Thar coal, despite environmental limitations, uses indigenous fuel and provides a domestically sourced base load alternative to imported gas and oil. On top of the bargain, solar and wind resources in Sindh and Balochistan are among the most cost-competitive generation technologies available anywhere in the world today. Consequently, the World Bank has noted a significant gap between Pakistan’s renewable energy capacity targets under the ARE Policy and what current expansion plans will actually deliver, a shortfall that can only be addressed through a new wave of competitively bid green energy PPPs. Therefore, no new imported-fuel thermal contracts should receive sovereign guarantees.
Conclusion
To put it succinctly, Pakistan’s energy crisis is too large and too structural to be solved by the public sector alone. What is more, the state has proven, over three decades, that it cannot efficiently build, operate, and finance the full energy chain, from generation through transmission to distribution, without accumulating unsustainable debt and passing the cost of inefficiency onto consumers. At the same time, private investment without strong public regulation has also failed, as the IPP contracts of the 1990s clearly demonstrated. To be sure, the solution is neither pure privatization nor continued state dominance. It is a disciplined, well-governed partnership in which the public sector provides policy direction, regulatory certainty, transmission infrastructure, and sovereign credibility, while the private sector delivers capital, operational efficiency, and competitive pricing. Reforms like CTBCM, management contracts for DISCOs, competitive IPP bidding, and a centralized PPP authority are not aspirational ideas; they are the specific institutional architecture Pakistan needs to make this partnership work. To sum up, the country’s renewable energy targets, energy security, and industrial competitiveness all depend on getting this nexus right.
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