The federal government’s financing deal aimed at tackling power sector debt has garnered much attention and rightly so. It is perhaps that rare occasion when Islamabad is facing past demons and taking them head on. The monster of circular debt has been years in the making. Hence, a massively bitter, one-time pill may be better to swallow. But herein lies the problem. One would have swallowed it if it was just one dose. However, in the circular debt report published by the Power Division – only updated till September of the ongoing fiscal year – a fresh Rs171 billion have been added just on account of distribution companies’ under recoveries and inefficiencies to the mountain of payables. It was only ‘other adjustments’ that brought the amount down on an overall basis. Massive increases in tariffs have erased purchasing power and pushed inflation to record high earlier, but DISCOs just don’t seem to stop bleeding. The Power Division says that the increase should be viewed in full context. During the same period last year, circular debt had risen by Rs73 billion, but by the end of FY2024–25 the overall stock had actually declined by Rs780 billion. That, dear sir, is due to stock payments that also come from the national exchequer. One is really looking forward to the rest of the year to confirm how much fresh stock would be added to circular debt. But that is a problem for another day. The discussion here revolves around DISCOs’ inefficiencies and their inherent and stubborn inability to address issues that plague Pakistan’s power sector. One argument that was floated during the caretaker setup a couple of years ago was transferring DISCOs to the provinces. Some have voiced concern that provinces need to step up to help DISCOs in addressing issues of under-recovery and stopping electricity theft. That may certainly work because provinces are the ones closer to ground reality. Their friction, however, with the centre may be a cause for concern. Why would the province want to spend their limited resources in helping the centre reduce its stock of debt when it can use it for political leverage. Here, the example of Punjab would make sense since the government in the centre has largely had a good relationship with this province. Let’s analyse the DISCOs – IESCO, LESCO, GEPCO, MEPCO, and FESCO - operating in Punjab. Their T&D losses and recovery ratios would be the place to start. In FY24, 4 out of 5 DISCOs in Punjab performed worse than their allowed loss benchmark. Only one DISCO performed better. One. This was Lahore, the hub of all political activity and where most attention is placed. But if this DISCO is not performing up to the mark, then no city will. It is the symbol of hope, apparently. To be fair, DISCOs in other provinces have fared much worse. PESCO, operating in Khyber Pakhtunkhwa, recorded 38.1% in T&D losses, well above the allowed target of 19.7% while HESCO and SEPCO, both serving Sindh, showed 27.6% and 34.9% T&D losses, respectively, far exceeding the allowed targets of 18.1% and 16.7%. Their allowed targets are also higher, just by the way, pointing to their even worse performance. Examining the T&D losses, the provincial governance angle seems misplaced. Only Lahore fares better and that is hardly an argument. To sum up how these minor variations cause financial loss to the national kitty, here is another infographic to convey how much this costs Pakistanis. QESCO more than doubled on its allowed T&D loss, yet its financial impact is around two-thirds of LESCO’s that has cost the kitty nearly Rs48 billion in FY24. The case that a minor deviation from the allowed target should be forgiven is nonsense. A minor inefficiency by LESCO costs Pakistan a lot more than other DISCOs. So what is the solution? The government is rightly pursuing the privatisation agenda as this is also empirically the only solution to loss-making DISCOs. If it is not pursued in earnest, we will more of the same. The same pattern of inefficiency, coupled with a lack of comprehensive reform, will ensure that circular debt remains an entrenched problem, undermining the financial stability of the entire sector and placing undue strain on the national economy. In the one DISCO that was privatised, T&D losses have been curtailed in one of the most challenging cities that is home to over 900 slums, significantly lower than HESCO and SEPCO. This performance stands in stark contrast to the publicly owned DISCOs in Sindh, despite them being governed under the same publicly owned framework. But like we say: a story for another day. Pakistan’s power sector challenges are too chronic to be blamed entirely on provincial governance. The rootcause can only be remedied by a systematic reduction of government involvement in running the power sector. The lack of performance-based incentives within public-sector DISCOs with the leeway to routinely park losses into the circular debt results in inefficiencies as the incumbent are not the ones bearing the burden of the losses.