Build a new transport line linking Islamabad, Faisalabad, the industrial hub of Punjab
An employee walks past the headquarters of the Asian Development Bank (ADB) in Manila. Photo: Reuters/File
ISLAMABAD:
Pakistan and the Asian Development Bank have signed two major financing initiatives worth a total of $730 million, aimed at strengthening the country’s power transmission network and accelerating reforms at state-owned enterprises, officials said Thursday.
The agreements cover a second project to strengthen electricity transmission, valued at $330 million, and a program to accelerate the transformation of public enterprises worth $400 million, according to a press release released after the signing ceremony.
The initiatives aim to reduce pressure on overloaded transmission lines, improve operational performance and advance long-delayed governance reforms.
Earlier this year, Pakistan and the ADB had also signed an agreement to provide $200 million in support to modernize the country’s troubled power distribution system through grid improvements, underscoring the lender’s growing commitment to 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 investment in the power sector.
She stressed that “the importance of the state-owned enterprise transformation program comes at a critical time in Pakistan, and it will further strengthen the reform efforts” of the country, the statement said.
The latest agreements follow the ADB’s approval last month of two loans totaling $330 million for Pakistan to build a new transmission line linking Islamabad and Faisalabad, a major industrial hub in Punjab, as part of broader efforts to stabilize and modernize the national grid.
However, experts say the real challenge lies not in project design or the volume of funding, but whether these initiatives address 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 a “milestone moment” for Pakistan, but warned that its success would depend on addressing stubborn inefficiencies.
He highlighted the Ministry of Finance’s semi-annual report on federal public enterprises for fiscal year 2025, which paints a gloomy picture: accumulated losses in major public enterprises have exceeded Rs 5.8 trillion. The NHA alone accounts for nearly Rs 2 trillion in accumulated losses, largely due to a debt-driven expansion model coupled with an unsustainable toll revenue structure.
“This is not a sector-specific problem; it is a systemic problem,” Dr Waleed said. In the infrastructure sector, the increase in NHL debt stock reflects asset creation that has nothing to do with cash flow realism. In the energy sector, the situation is undoubtedly worse. Once subsidies are removed, power distribution companies (DISCOs) are estimated to lose nearly Rs 600 billion annually due to high technical losses, poor recoveries and governance failures, losses which directly feed into circular debt and escalating upstream capacity payment obligations.
In this context, critics argue that strengthening transport infrastructure, while necessary, risks becoming a partial solution. “Reforming generation or transportation without fixing distribution is like installing a smart meter on a leaky pipe,” noted Dr. Waleed.
The concern is that the SOE transformation agenda, as currently formulated, may be too narrowly focused. While NHL reform is a logical starting point, analysts say it must go beyond incremental efficiencies and move toward more fundamental restructuring, such as asset recycling, securitization of tolls and operating highways as concessions, rather than continued debt-financed balance sheet expansion.
Similarly, SOEs in the energy sector, particularly DISCOs, need to be explicitly included in the SOE transformation framework. Options include privatization, long-term concessions or performance-based management contracts, supported by aggressive digital metering and loss reduction targets. If distribution losses are not addressed, any gains from improved transmission capacity risk being absorbed by systemic leakages.
The debate also intersects with the broader challenges of Pakistan’s energy transition. The power sector faces a growing paradox: growing capacity fees alongside growing underutilization 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 energy, further depriving existing thermal power plants of their merit.
In this context, analysts argue that the AfDB’s engagement should extend beyond grid strengthening to include support for an energy transition mechanism. Dr Waleed suggested that an early, orderly and funded transition of loss-making thermal assets, starting with the ADB-funded Jamshoro coal-fired 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 network, but it does not resolve the contradiction between excess capacity and growing budgetary tension,” he said. “This requires tackling stranded thermal assets and aligning public enterprise reform with the energy transition.”
Ultimately, the $730 million package highlights both opportunities and risks. If combined with politically difficult but economically necessary reforms, it could catalyze the long-delayed restructuring of Pakistan’s state-owned enterprises and energy sector. Otherwise, critics warn, it could simply add new assets to an old system still weighed down by losses, debt and governance failures.
