Corporate Governance in the State-Owned Electricity Distribution Companies

PIDE Knowledge Brief No. 40:2021
Author: Afia Malik
Publication Year : 2021

NEPRA has approved the detailed design and implementation plan of Competitive Trading Bilateral Contract Market (CTBCM) of electricity, to be implemented in a year. The model envisages that all future contracts for the sale/purchase of electricity will be bilateral between the parties: sellers (generation companies) and buyers (distribution companies or bulk power consumers). But for a competitive electricity market, we need an efficient and financially viable distribution sector first, where a well-developed corporate governance system could be the solution.

In electric power systems, the financial health of the distribution sector is critical. A financially weak distribution company can weaken the flow of funds in the entire supply chain, and their operational limitations can lead to the wastage of energy resources. There is a shortfall between cash inflows and outflows in the power supply chain of Pakistan— circular debt. In FY-2020, more than 50 percent of arrears were due to low bill recoveries and the difference between the allowed and actual distribution losses by NEPRA (Malik, 2020). Apart from sectoral policy issues, the power distribution sector challenges, including institutional weaknesses, centralized control (under the Ministry of Energy-Power Division), and weak corporate governance, are mainly responsible for the circular debt.

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