Pakistan and the International Monetary Fund (IMF) have made progress in negotiations on the fourth review of the country’s economic programme, with discussions continuing to finalise the draft Memorandum of Financial and Economic Policies (MEFP), according to sources.
During the talks, the government briefed the IMF on its plans to increase private-sector participation in power distribution companies, including the proposed privatisation of FESCO, GEPCO and IESCO.
According to the proposed timeline shared with the IMF, the three companies are expected to be privatised by March 2027, with FESCO targeted for January, GEPCO for February and IESCO for March.
The Privatisation Commission has already invited expressions of interest, offering investors between 51% and 100% shareholding along with management control.
A second phase would involve HESCO and SEPCO, with transactions targeted between April and June 2027. Distribution companies serving Peshawar, Hazara, Lahore and Multan are expected to follow by December 2027. QESCO is not currently included in the privatisation programme.
The IMF also raised questions about the financial burden created by the power distribution sector. Government figures presented during the discussions showed that 10 DISCOs recorded combined losses of approximately Rs299 billion during the previous fiscal year, while around Rs551 billion was provided in subsidies, taking the combined annual burden to roughly Rs850 billion.
The power sector’s circular debt was reported at around Rs1.675 trillion. The IMF has previously called for measures to prevent further accumulation of circular debt while improving the governance and efficiency of distribution companies.
Another issue under discussion is the government’s plan to retain a uniform nationwide electricity tariff after privatisation. Under the proposed arrangement, consumers in areas served by more efficient DISCOs could continue contributing towards costs associated with weaker distribution companies.
Sources said the IMF questioned whether the proposed privatisation model would sufficiently address the sector’s longstanding losses and inefficiencies.
As part of the restructuring, the government also plans to remove selected assets and liabilities from DISCO balance sheets before privatisation and transfer them to a government-owned Special Purpose Vehicle (SPV).
The IMF reportedly sought clarification on whether transferring liabilities to the SPV could leave the government with a continuing financial burden even after the companies were privatised. The government maintains that the restructuring is necessary to make the DISCOs commercially viable and attract private investment.
Consultations over the MEFP are continuing, while the IMF mission is expected to leave Pakistan in the coming days. If outstanding issues cannot be resolved during the current visit, negotiations could continue virtually before the two sides reach a staff-level agreement.