PNN: Pakistan and the Asian Development Bank have signed two major financing initiatives worth a combined $730 million, aimed at reinforcing the country’s power transmission network and accelerating reforms in state-owned enterprises (SOEs), officials said on Thursday.
The agreements cover a second power transmission strengthening project, valued at $330 million, and an accelerating SOE transformation programme amounting to $400 million, according to a statement issued after the signing ceremony.
The initiatives are designed to reduce stress on overburdened transmission lines, improve operational performance and advance long-delayed governance reforms.
Earlier this year, Pakistan and ADB had also signed an agreement to provide $200 million in support for upgrading the country’s struggling power distribution system through network improvements, underscoring the lender’s expanding engagement in the energy sector.
ADB Country Director Emma Fan welcomed the agreements, commending Pakistan’s commitment to the reform agenda and highlighting the strategic importance of the power sector investment.
She underscored that “the significance of the SOEs transformation programme comes at a critical time in Pakistan, and it will further strengthen the reform efforts” of the country, the statement said.
The latest deals follow ADB’s approval last month of two loans totalling $330 million for Pakistan to construct a new transmission line linking Islamabad and Faisalabad, a major industrial hub in Punjab, as part of broader efforts to stabilise and modernise the national grid.
However, experts argue that the real challenge lies not in project design or funding volume, but in whether these initiatives confront the underlying political economy of losses that continue to erode fiscal space and undermine competitiveness.
Dr Khalid Waleed of the Sustainable Development Policy Institute (SDPI) described the $730 million package as an “important moment” for Pakistan, but warned that its success would depend on addressing entrenched inefficiencies.
He pointed to the Ministry of Finance’s Bi-Annual Report on Federal SOEs for FY2025, which paints a grim picture: accumulated losses across major SOEs have exceeded Rs5.8 trillion. The NHA alone accounts for nearly Rs2 trillion in accumulated losses, largely due to a debt-driven expansion model paired with an unsustainable toll-revenue structure.
“This is not a sector-specific problem; it is systemic,” Dr Waleed said. In infrastructure, NHA’s rising debt stock reflects asset creation divorced from cash-flow realism. In energy, the situation is arguably worse. Once subsidies are stripped out, power distribution companies (DISCOs) are estimated to be bleeding close to Rs600 billion annually due to high technical losses, poor recoveries, and governance failures, losses that feed directly into circular debt and escalating capacity payment obligations upstream.
Against this backdrop, critics argue that strengthening transmission infrastructure, while necessary, risks becoming a partial fix. “Reforming generation or transmission without fixing distribution is like installing a smart meter on a leaking pipe,” Dr Waleed noted.
The concern is that the SOE Transformation Program, as currently articulated, may be too narrowly focused. While NHA reform is a logical starting point, analysts argue it must move beyond incremental efficiency gains toward more fundamental restructuring, such as asset recycling, toll securitisation, and concession-based highway operations, rather than continued balance-sheet expansion financed by debt.
Similarly, energy-sector SOEs, particularly DISCOs, need to be explicitly embedded within the SOE transformation framework. Options include privatisation, long-term concessions, or performance-based management contracts, supported by aggressive digital metering and loss-reduction targets. Without tackling distribution losses, any gains from improved transmission capacity risk being absorbed by systemic leakages.
The debate also intersects with Pakistan’s broader energy transition challenges. The power sector faces a growing paradox: rising capacity charges alongside increasing underutilisation of generation assets, exacerbated by the rapid expansion of rooftop solar. This trend is likely to intensify as export-oriented industries respond to the European Union’s Carbon Border Adjustment Mechanism (CBAM) by demanding cleaner power, further pushing legacy thermal plants out of merit.
In this context, analysts argue that the ADB’s engagement should extend beyond grid strengthening to include support for an Energy Transition Mechanism. Dr Waleed suggested that an orderly, financed early transition of loss-making thermal assets, starting with the ADB-funded Jamshoro coal power plant, could reduce future capacity payments, ease circular debt pressures, and create a replicable model for other plants.
“The transmission project secures the backbone of the grid, but it does not resolve the contradiction between surplus capacity and mounting fiscal stress,” he said. “That requires confronting stranded thermal assets and aligning SOE reform with the energy transition.”
Ultimately, the $730 million package underscores both opportunity and risk. If paired with politically difficult but economically necessary reforms, it could catalyse long-delayed restructuring of Pakistan’s SOEs and energy sector. If not, critics warn, it may simply add new assets to an old system still weighed down by losses, debt, and governance failures.