Pakistan is preparing to privatize some of its electricity distribution companies at precisely the moment when the electricity business itself is undergoing the most profound transformation in a century. The need for reform is beyond dispute. Circular debt continues to grow, tariffs have become increasingly unaffordable, industrial competitiveness has deteriorated, consumers are moving rapidly towards rooftop solar and batteries, and the traditional utility model is under stress. The status quo cannot continue.

But the national debate is starting in the wrong place. It is focused on whether privatization is desirable when the more important questions are what exactly is being privatized, what rights and assets are being transferred, what market the new owners will operate in, and whether the electricity sector is economically viable in its present form. Unless these questions are answered before final bids are invited and binding agreements are signed, Pakistan risks completing a transaction without completing a reform. Perhaps another IPP will happen with government guaranteed returns and no market risk.

This distinction matters because privatization is not an objective in itself. It is only one instrument available to improve efficiency, governance, investment and service quality through market development and competition. The objective must be a financially sustainable and competitive electricity sector that provides reliable and internationally competitive power, supports industrialization and exports, integrates new technologies, protects consumers and creates incentives for investment rather than recurring bailouts. If privatization delivers those outcomes, it deserves support. If it merely changes ownership while leaving the underlying market architecture untouched, the country may discover that it has privatized yesterday's grid while retaining yesterday's problems. And the private sector will exact a price as well as government guarantees that will endanger the taxpayer.  The Government therefore has an opportunity to do something more ambitious than sell several companies. It can use the process to redesign the sector around transparency, competition, flexibility, independent regulation and the emerging Future Grid. The decisions taken now will shape the value of the distribution businesses, the burden ultimately carried by taxpayers and consumers, and the ability of Pakistan's economy to compete for decades.

What Exactly Is Pakistan Selling?

The first problem is the absence of a sufficiently clear public description of the transaction. FESCO, IESCO and GEPCO are being advanced as the first major distribution-company privatizations. Advisers have been appointed, investors have been invited into the process and due diligence is proceeding. Yet the public record still does not provide a simple, comprehensive answer to the most basic question: what exactly will the buyer acquire?

A distribution company is not merely a collection of poles, wires and transformers. It owns or controls grid stations, substations, control centres, offices, warehouses, workshops, training facilities, residential colonies, rights-of-way, communications systems, billing platforms and extensive customer information. It may also own strategically located land accumulated over decades. Some of that land is essential to network operation; some may be surplus; and some may possess commercial or redevelopment value far in excess of its current use as utility property.

The treatment of that land is therefore central to valuation. Will it remain in the company and pass to the purchaser? Will strategic and surplus properties be separated before sale? Will land remain in state ownership and be leased to the privatized utility? What happens to development rights if a substation is relocated or a depot becomes redundant? Will independent valuations be published, and will the public be able to see how real-estate value has been reflected in the transaction price? These are not peripheral legal details. They determine what the taxpayer is transferring.

The same uncertainty surrounds the commercial rights attached to the companies. The electricity business is changing rapidly. A future distribution company may not earn its principal value merely by delivering centrally generated electricity to captive consumers. It may become an open network operator, a retail supplier, an aggregator of rooftop solar and batteries, an operator of electric-vehicle charging infrastructure, a provider of demand-response and flexibility services, a digital energy platform and a controller of valuable real-time customer and network data. If those rights are included in the transaction, the purchaser is acquiring much more than today's regulated distribution business.

The issue becomes especially sensitive because sophisticated bidders cannot value these companies without detailed information on assets, liabilities, regulatory assumptions, employee obligations, litigation, land title, future commercial rights and the expected market structure. If bidders have been given material information that has not been placed in the public domain, the Government should explain why Parliament, consumers, industry and taxpayers do not have access to the broad transaction architecture. If bidders have not been given such information, then it is difficult to understand how credible valuations can be prepared. Either way, the current information gap weakens confidence in the process.

There is no commercial reason for the Government to publish bidder-specific confidential information or commercially sensitive negotiations. But there is every reason to publish the structure of the transaction: what is being sold, what is being retained, how land is treated, which liabilities remain with the State, what future commercial rights accompany the sale and what regulatory obligations will bind the new owners. The public does not need to see every data-room document to understand the basic bargain being made in its name.

This is particularly important because the strongest distribution companies may also have the greatest future option value. Their territories contain dense industrial and commercial loads, affluent residential customers, growing solar adoption and some of the strongest potential markets for batteries, electric vehicles and digital energy services. A valuation based only on today's regulated cash flows could therefore understate the long-term value of the franchise. Conversely, a buyer constrained to operate only a conventional wires business under rigid regulation may attach much less value to those future opportunities. The Government must define the future business before it can credibly claim to have maximized the value of the sale.

The broader principle is straightforward. Public assets should not be transferred through a process that is understood in detail by advisers and bidders but only in outline by the public that owns them. Transparency is not an obstacle to privatization. It is the foundation of a transaction that can survive political change, legal scrutiny and future technological disruption.

Privatization Cannot Fix a Broken Market

The second issue is more fundamental. Even a perfectly transparent transaction cannot succeed if the market into which the companies are sold remains structurally flawed. Pakistan's electricity crisis is often presented as a failure of public ownership, implying that private ownership will automatically produce a viable sector. That diagnosis is too convenient.

The sector reached its present condition because the policy framework rewarded investment more than efficiency, capacity more than productivity, administrative regulation more than competition and construction more than market development. Changing ownership without changing that framework risks treating symptoms while leaving the disease intact.

This is why the future role of NEPRA should be at the centre of the privatization debate. Investors are not buying unregulated commercial companies. They are buying businesses whose revenues, investment recovery, quality obligations, allowed returns and competitive position depend overwhelmingly on regulatory decisions. Tariffs, capital expenditure, performance targets, open access, supplier choice, network charges, distributed generation and consumer protection all sit within the regulatory framework. The economic value of the business is inseparable from the quality of the regulator.

Pakistan's experience with the IPP model should be treated as a warning. Private investment itself was not the problem. Pakistan needed generation and private investors responded rationally to the incentives offered. The deeper failure was that the broader market did not evolve alongside private........

© The Friday Times