Build a new transmission line that will link Islamabad, Faisalabad and the industrial center of Punjab.
A worker walks past the interior of the Asian Development Bank (ADB) headquarters in Manila. Photo: Reuters/ Archive
ISLAMABAD:
Pakistan and the Asian Development Bank have signed two major financing initiatives worth a combined $730 million, aimed at strengthening 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 accelerated state-owned enterprise transformation program worth $400 million, according to a statement issued after the signing ceremony.
The initiatives are designed to reduce strain on overloaded transmission lines, improve operational performance and advance long-overdue governance reforms.
Earlier this year, Pakistan and the ADB also signed an agreement to provide $200 million in support to improve the country’s power distribution system through network upgrades, 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 energy sector.
He stressed that “the importance of the state-owned enterprise transformation program comes at a critical time in Pakistan and will further strengthen the country’s reform efforts,” according to the statement.
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 argue that the real challenge lies not in the project design or the volume of financing, but in 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 “major moment” for Pakistan, but warned its success would depend on addressing entrenched inefficiencies.
He pointed to the Ministry of Finance’s Semi-Annual Report on Federal State-Owned Enterprises for Fiscal Year 2025, which presents a grim picture: cumulative losses at major state-owned enterprises have exceeded Rp5.8 trillion. The NHA alone accounts for nearly Rs 2 trillion in accumulated losses, largely due to a debt-driven expansion model combined with an unsustainable toll revenue structure.
“This is not a sector-specific problem; it is systemic,” Dr. Waleed said. In infrastructure, NHA’s growing debt volume reflects asset creation divorced from cash flow realism. In the energy sector, the situation is possibly worse. Once subsidies are removed, it is estimated that distribution power companies (DISCOs) will lose close to Rs 600 billion annually due to high technical losses, poor recoveries and governance failures, losses that directly fuel circular debt and rising capacity payment obligations in the upstream phases.
In this context, critics argue that strengthening transmission infrastructure, while necessary, risks becoming a partial solution. “Reforming generation or transmission without fixing distribution is like installing a smart meter on a leaky pipeline,” Dr. Waleed said.
The concern is that the Public Enterprise Transformation Program, as currently articulated, may have too narrow a focus. While NHA reform is a logical starting point, analysts argue that it must move beyond incremental efficiency gains toward more fundamental restructuring, such as asset recycling, securitization of tolls and concession-based highway operations, rather than continued debt-financed balance sheet expansion.
Similarly, SOEs in the energy sector, particularly DISCOs, need to be explicitly integrated into the SOE transformation framework. Options include privatizations, long-term concessions or performance-based management contracts, backed 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 energy sector faces a growing paradox: rising capacity charges coupled with 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, causing legacy thermal plants to further lose their merits.
In this context, analysts maintain that the ADB’s commitment should go beyond strengthening the network and include support for an Energy Transition Mechanism. Dr Waleed suggested that an early, orderly and financed transition of loss-making thermal assets, starting with the ADB-financed Jamshoro coal-fired power station, could reduce future capacity payments, alleviate circular debt pressures and create a replicable model for other plants.
“The transmission project secures the backbone of the network, but does not resolve the contradiction between excess capacity and growing fiscal tension,” he said. “This requires tackling stranded thermal assets and aligning the reform of state-owned companies with the energy transition.”
Ultimately, the $730 million package underscores both the opportunity and the risk. 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 burdened by losses, debt and governance failures.
