• Finance ministry report says aggregate profits decline 13pc to Rs709.9bn
• Power sector’s Rs9.2tr debt crisis deepens despite Rs800bn capital injection

ISLAMABAD: Sitting on mammoth liabilities of Rs9.2 trillion — equivalent to half of Pakistan’s annual budget — and facing ever-rising losses and negative equity, the power sector leadership remains clueless about its business operations as a going concern and the consequential challenge to the state.

This damning charge sheet has been issued by the Central Monitoring Unit (CMU) of the Ministry of Finance in its FY25 aggregate report on the performance of State-Owned Entities, as required by the IMF, posing a serious question mark on the credibility of power sector planning.

This is despite the fact that the power sector remains the top recipient of equity injections, while continuously bleeding the economy and consumers at large. National Highway Authority (NHA) comes as the second biggest financial black hole after the power sector.

Worst still, the business plans submitted by power sector distribution companies (Discos) tend to be descriptive rather than analytical. These plans often list intended activities, such as improving recoveries or reducing losses, but fail to model the financial impact of these interventions.

“The absence of clear financial causality undermines the credibility and effectiveness of these plans,” the CMU observed in its report released on Friday with the approval of the federal government as required under the IMF programme.

The report noted over Rs2tr of unfunded liabilities of all federal SOEs, including more than Rs1.5tr of unfunded pension liabilities in the power sector alone, in addition to around Rs1.9tr circular debt, despite around Rs800bn capital injection during FY2025.

Not only the Discos but generation companies (Gencos) typically present outdated and defensive business plans, focused on preserving existing capacity rather than optimising the asset portfolio. There is a notable lack of cost-benefit analysis of refurbishment versus decommissioning, as well as little evaluation of asset-disposal or privatisation options. Consequently, capital remains tied up in low-yield assets.

A recurring theme in Gencos plans is the sunk cost fallacy — the notion that prior investments justify continued capital expenditure. However, in a reform-oriented context, sunk costs should be viewed as historical facts, not as valid grounds for further investment. “Without rationalisation modelling, capital continues to be misallocated”, the report observed.

The report said the Discos’ plans frequently omit essential financial planning elements, such as capital prioritisation, sequencing investments aimed at loss reduction, and modelling of returns on investment. There is little consideration of indicators such as the Debt Service Coverage Ratio (DSCR), the Weighted Average Cost of Capital (WACC), or leverage.

“As a result, these plans lack the rigor needed to serve as tangible restructuring roadmaps and instead remain mere wish lists”, the report said pointing out “a broader challenge of Discos following an activity-based planning approach — plan, spend, and hope for positive outcomes — rather than a value-based approach that emphasises modelling, prioritisation, and strategic allocation based on return on investment”.

Overall, the CMU reported that fiscal support to SOEs increased by 37pc to Rs2.079tr in FY25, compared with the previous year’s Rs1.513tr. The expansion of fiscal support was driven by significant changes across various components, including equity injections totalling Rs729bn, led by a one-off circular debt payment.

Government loans to SOEs also grew, climbing by 34pc from Rs263.3bn to Rs354.1bn, underscoring the government’s ongoing commitment to providing direct financial resources to support SOE operations and restructuring.

In contrast to increases in guarantees, loans, and equity, both grants and subsidies declined. Grants fell by 27pc to Rs269.2bn, while subsidies dropped by 7pc, reaching Rs726.3bn. These reductions “reflect shifting government priorities or improved operational efficiencies in certain areas”.

Sovereign guarantees increased markedly, from Rs1.412tr in FY24 to Rs2.164tr in FY25, reflecting a 52pc rise. This change is not due to the addition of new guarantees, but rather accounting for self-liquidating guarantees on stock.

During FY25, SOEs experienced a decline in their overall profitability. Aggregate profits decreased by 13pc, falling from Rs820.7bn in FY24 to Rs709.9bn in FY25. This downward adjustment was primarily attributed to reduced financial contributions from profit-making SOEs in the oil sector, a consequence of declining international oil prices.

On the loss side, there was a slight improvement, with cumulative losses across SOEs declining by 2pc to Rs833bn in FY25 against Rs851.4bn in the previous fiscal year. “The net result of these changes in profits and losses was a total net adjusted loss of Rs122.9bn for FY25 from Rs30.6bn in FY24”, it said, putting the NHA at the top with Rs295bn loss and over Rs315bn power sector loss.

Total SOEs equity increased by 7pc, rising from Rs5.865tr in FY24 to Rs6.246tr in FY25, but this growth was primarily driven by recapitalisation efforts and significant equity injections, particularly in the power sector, to clear the circular debt stock.

On the liabilities side, there was a moderate improvement, as total liabilities decreased by 3pc to Rs31.742tr in FY25 from Rs32.57tr. Total assets value remained largely unchanged, exhibiting only a marginal decrease of 1pc to Rs37.988tr from Rs38,44tr a year earlier.

During the year, the federal government collected Rs12.97tr in tax revenue, of which approximately Rs2.1tr (about 16pc) was channelled back to SOEs through subsidies, equity injections, grants, and loans. In practical terms, every Rs6 collected in taxes results in Re1 being absorbed by SOEs.

The SOEs’ debt stock, circular debt, pensions and quasi-fiscal flows showed that total debt portfolio rose by 4pc, increasing from Rs9.196tr to Rs9.571tr, reflecting a clear re-profiling of the funding architecture among SOEs. Cash Development Loans saw a significant expansion, up 21pc to Rs2146tr. Similarly, Foreign Re-Lent exposure increased by 24pc to Rs2.16tr.

“These changes confirm a shift toward sovereign-intermediate financing, in which the federal government assumes the credit risk and SOEs act as pass-through borrowers”, the report deplored. Bank borrowing remained nearly unchanged at Rs2.8tr, suggesting a credit-saturated environment and sector-wide tightening of exposure limits.

Contributing factors include elevated leverage, a deterioration in debt service coverage, and higher expected losses. Unfunded pensions stand at Rs2.03tr, including Rs1.5tr in the power sector, and excluding the pensions of Pakistan Railways, which reports pensions on a cash basis annually rather than on aggregate pension unfunded obligations.

Statutory compliance standards were found to be weak and uneven across SOEs, with approximately 36pc of SOEs having finalised audited financial statements as of the reporting cutoff. This constrains the timeliness of performance analysis, valuation assessments, and comprehensive fiscal-risk evaluation.

The CMU called for continued strengthening in these areas — including board composition, audit timeliness, disclosure quality, and performance-linked accountability — which would support greater strategic discipline and help SOEs progress toward sustained value creation for the state.

Published in Dawn, February 14th, 2026

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