Pakistan’s Privatisation Commission has received expressions of interest from four foreign and eight local investors for Faisalabad Electric Supply Company. FESCO is the first of three power distribution companies, or discos, being offered in the first phase, with GEPCO and IESCO to follow. The response vindicates the Commission’s efforts to attract serious bidders. It does not, however, establish that Pakistan has created the regulatory conditions under which privatisation can succeed. That harder task now begins.

The conventional sequence for a regulated monopoly is to establish the rules first and transfer ownership second. Pakistan is doing much of this in reverse. The Commission has indicated that it will engage prospective investors to refine the disco tariff structure, multiyear tariff regime, business model and framework for competitive suppliers. That admission is more consequential than the number of expressions of interest. The asset is being marketed while the rules governing its future returns, obligations and competitive environment are still being designed.

Consulting investors is sensible. Allowing the eventual buyer to negotiate a bespoke regulatory compact is not. Investor feedback should inform rules that apply across the sector, rather than produce protections tailored to whichever consortium acquires FESCO. Those rules must also be settled before ownership changes hands. Otherwise, the government risks privatising a territorial monopoly first and discovering afterwards that it has surrendered much of its ability to regulate it.

The PIA transaction offers a precedent, but not reassurance. The government selected a buyer before every legal, regulatory and administrative condition precedent had been completed, and then worked through the outstanding requirements afterwards. Even if that approach ultimately succeeds, PIA is a poor template for a disco. An airline operates in a competitive market where customers have alternatives. FESCO controls an essential distribution network whose consumers cannot simply switch to another set of wires. Regulatory mistakes in electricity distribution cannot be disciplined by ordinary consumer choice.

The scale of the underlying problem is also considerably larger. Repeated circular-debt settlements since 2013 have cleared liabilities without preventing their reaccumulation. Pakistan already has a cost-recovery tariff model on paper, yet political delays, under-recoveries, excess losses, poorly targeted subsidies and contractual rigidities continue to reproduce the financing gap. The state has responded by adding entities, surcharges and administrative layers while genuine market reform has repeatedly stalled.

The objective of disco privatisation should therefore not be to maximise sale proceeds. It should be to end recurrent fiscal leakage, improve service delivery and introduce operating discipline that public management has failed to deliver. A high sale price achieved by guaranteeing the buyer’s returns, shielding it from commercial risk or passing every inefficiency through to consumers would be an accounting triumph and a policy failure.

Pakistan’s more successful privatisations were never merely changes in ownership. Banking reforms began in the 1990s and combined privatisation with stronger supervision, prudential regulation, corporate governance and greater autonomy for the SBP. Telecom liberalisation gathered force in the early 2000s, bringing competition and private capital into a market previously defined by expensive connections and chronic scarcity. Cement privatisation replaced obsolete wet-process production with more efficient dry-process capacity, ending recurring shortages and eventually creating an exportable surplus.

The cement industry later acquired a cartel problem, but that does not constitute an argument for restoring state-owned kilns. It demonstrates that private efficiency and private market power can coexist, and that competition enforcement remains indispensable after privatisation. Ownership reform cannot substitute for regulation.

K-Electric supplies the more immediate warning. KE has reduced transmission and distribution losses meaningfully since privatisation, but its record on service, investment and reliability remains contested. The generation segment offers an even starker contrast. Independent power producers secured unusually generous returns where the government wrote weak contracts, while the publicly owned Neelum-Jhelum project absorbed hundreds of billions of rupees and remains out of operation after repeated technical failures. Public and private ownership can both destroy value, although they do so differently. Private capital follows incentives; it does not volunteer to perform public policy. The regulator’s job is to make profitability conditional on investment, reliability, lower losses and better service.

Within the government’s chosen asset sequence, putting FESCO first makes sense. It is among the strongest discos, with a substantial industrial consumer base and comparatively manageable losses. A successful first transaction can establish a credible valuation and procedural benchmark before weaker companies reach the market. It can also reveal how much investors are genuinely prepared to pay once the political and operational risks are properly priced.

The harder questions will emerge during due diligence. Investors will want certainty over tariff adjustments, subsidy payments, government arrears, legacy receivables, employee and pension liabilities, theft enforcement, capital-expenditure obligations and the treatment of consumers migrating towards distributed solar and captive generation. Many of those concerns are legitimate. The government’s task is to distinguish demands for regulatory certainty from attempts to transfer commercial risk back to the state. Every concession granted to sell FESCO will become a precedent demanded by bidders for the weaker discos.

Resistance inside the Power Division is therefore unsurprising. The prime minister’s determination to proceed may be the only force capable of breaking through a bureaucracy that has spent decades preserving and protecting the status quo. Transaction pressure can force reforms that ordinary policymaking has repeatedly postponed. But that pressure must be used to build durable rules, not bypass them.

Before financial close, Pakistan needs a credible multiyear tariff framework, enforceable service and investment standards, a transparent mechanism for settling subsidies and government dues, a workable plan for legacy employees and liabilities, and a regulator with the independence and capacity to enforce the bargain. The framework must also recognise that rooftop solar and captive generation are peeling away some of the grid’s better-paying consumers, leaving fixed network costs to be recovered from a shrinking base. Pakistan cannot privatise yesterday’s utility model and assume technology will wait.

Pakistan has begun disco privatisation in the wrong order, but the process is not necessarily doomed. Expressions of interest and due diligence can precede regulatory reform; ownership transfer cannot. PIA showed that a buyer can be selected while legal and regulatory loose ends remain. It has not established that this is a durable reform model, and an airline is not a monopoly network. The measure of success at FESCO will therefore not be the number of bidders or the headline sale price. It will be a question of whether Pakistan can sell the company without also selling its capacity to regulate it.