To ease the concerns of investors competing to acquire state-owned power distribution companies, the Privatisation Commission has proposed a broad package of power sector reforms to accompany the sale of Discos. The most consequential of the proposed reforms include dismantling the uniform electricity tariff regime across these companies, enabling competing private suppliers to charge different rates while maintaining regulated tariffs for consumers served under a Supplier of Last Resort (SoLR) mechanism. Other key measures feature a time-bound initiative to trim tariff differential subsidies and realign domestic electricity prices with actual supply costs, while safeguarding targeted relief for vulnerable households. Additionally, the regulatory multi-year tariff period will be extended from five to seven years.
The proposed changes form part of a structural overhaul of the power distribution sector designed to support privatisation. The plan envisages unbundling distribution network ownership from retail supply, transferring legacy capacity-payment obligations to private suppliers alongside customer portfolios, and tying utility returns to operational efficiency, loss reduction, and service quality rather than capital assets.
Detailed in a 25-page draft titled Power Distribution Companies’ Post-Privatisation Regime: Market Architecture, Business Models and Regulatory Oversight, the Privatisation Commission has circulated the proposals to relevant ministries, regulators and investors for feedback. While not yet an approved policy framework, the proposal is expected to be presented to the prime minister this week.
Govt weighs plan to abolish uniform electricity tariffs across Discos
The reform package follows concerns raised by potential investors during domestic and international roadshows for Discos’ sales, aiming to provide prospective buyers with long-term policy and regulatory clarity and predictability.
Under the proposed model, the state would progressively step back from direct electricity procurement and retail operations. The Central Power Purchasing Agency (CPPA-G) would cede its single-buyer role for retail supply. Instead, licensed Competitive Suppliers (CSs) would procure power, manage customer portfolios, and compete directly in the retail market, with Nepra overseeing both distribution networks and market competition.
Private suppliers could offer tailored tariffs and contract durations based on procurement costs, demand profiles, payment histories, and service standards. They could also introduce customised packages for industrial, commercial and agricultural consumers, along with energy-efficiency solutions and structured payment options. Meanwhile, the regulated SoLR framework would guarantee uninterrupted power where market competition remains unavailable or if a supplier fails. The market would open regionally as Discos are privatised, allowing suppliers to trade electricity across territories under regulated guidelines.
A cornerstone of the plan is transferring legacy generation capacity obligations from CPPA-G to incoming private suppliers alongside customer portfolios, preventing operators from cherry-picking profitable accounts while leaving fixed costs with the state.
As each Disco is privatised, CPPA-G or a designated entity would auction its contracted capacity. Successful bidders would assume proportionate payment obligations and a representative customer mix, including protected consumers, along with existing cross-subsidies and associated commercial risks.
Participation would be voluntary, allowing suppliers to bid for specific megawatt allocations. The framework eliminates the existing one-megawatt eligibility threshold as well as 400-megawatt and 800-megawatt transfer caps, with unallocated capacity offered in subsequent auctions.
Existing power purchase agreements (PPAs) between CPPA-G and independent power producers (IPPs) would remain intact. CPPA-G would instead sign separate agreements with private suppliers, allocating electricity from the existing generation pool on a pro-rata basis rather than assigning specific plants.
While suppliers would initially take on legacy obligations, they would gradually assume responsibility for demand forecasting and independent procurement as legacy contracts expire. Power could be sourced through bilateral contracts, auctions, or organised power exchanges, supported by a regulated electronic platform to facilitate capacity trading and portfolio adjustments.
Each distribution firm’s physical grid will be ring-fenced from its retail supply operations. The Distribution Network Operator (DNO) will manage the regulated natural-monopoly grid, provide non-discriminatory network access to licensed suppliers, and absorb line losses exceeding Nepra-approved benchmarks, with allowable losses recovered via regulated revenues.
The proposal also replaces asset-based returns with a performance-linked model known as Return on Equity, Improvements, Efficiency and Losses (RIEL). Investors would receive a base return derived from the Capital Asset Pricing Model (CAPM), with performance bonuses tied to service quality, operational efficiency, and grid loss reductions.
Nepra would align performance incentives and penalties with service reliability, outage reductions, technical compliance, and prompt dispute resolution. Operational savings and loss reductions against benchmarks would be shared equally between utility owners and consumers, with performance-based returns capped at 50 per cent and audited annually.
The owner of each DNO would hold the territory’s SoLR license, ensuring continuous supply where competition has yet to develop, retaining unallocated customer portfolios, and temporarily taking over accounts from defaulting suppliers. The SoLR would also handle billing, collections, customer support, and subsidised tariffs for protected consumers.
NEPRA would institute a clear protocol to transfer a failed supplier’s customers and capacity obligations to a replacement entity without interrupting service or demanding duplicate security deposits. Suppliers would maintain financial security proportionate to their customer portfolios, while legacy receivables and bad debts would be resolved through separate transitional arrangements.
To rationalise power tariffs, the paper outlines a phased reduction in tariff differential subsidies. An initial phase will target households fraudulently obtaining protected-consumer status by splitting loads across multiple single-phase connections. Grid operators and suppliers will employ data analytics and physical audits to remove ineligible users, sharing the resulting subsidy savings with the government under a predefined formula.
The broader subsidy reform unfolds across three stages: eliminating unauthorized subsidies, rationalizing domestic tariff structures, and redirecting targeted relief through the Benazir Income Support Programme, the National Socio-Economic Registry, and utility databases. Existing cross-subsidies will be maintained during the initial transition to mitigate fiscal shocks and protect affordability.
The framework also allows privatised utility operators to diversify revenues. DNOs could offer technical and metering services, deploy battery energy storage systems to curb peak-hour losses, maintain third-party electrical assets, host telecom infrastructure, and lease spare fiber-optic capacity.
Broader commercial ventures, such as electric vehicle charging networks, distributed solar power, and energy-efficiency programs, must operate through separate, ring-fenced affiliates to shield regulated utility consumers from commercial risks. Any revenue generated using regulated assets would be shared with consumers under the Nepra guidelines.
To prevent market abuse and conflict of interest, the paper mandates strict operational and financial firewalls between network operators and affiliated suppliers, equal access to customer data, stringent related-party transaction controls, and regular market concentration assessments.
Nepra and the Competition Commission of Pakistan will jointly coordinate market oversight and enforcement. Full implementation will be phased alongside Disco privatisations, requiring prior government approval of market rules, licensing structures, settlement systems, and operational readiness across all participating entities.
Published in Dawn, The Business and Finance Weekly, November 2nd, 2026
