Power Division plans Public Service Obligation deals with DISCOs for tariff relief, subsidy management

The Power Division is set to sign Public Service Obligation (PSO) agreements with power distribution companies (DISCOs) to formalise arrangements related to tariff subsidies, relief packages and surcharge collection under the NEPRA Act, Business Recorder reported, citing official sources familiar with the matter.

The agreements are being prepared under the State-Owned Enterprises (Governance and Operations) Act, 2023, which allows the federal government to assign public service obligations to state-owned enterprises.

The proposed agreements aim to formally define and regulate functions that DISCOs have historically performed on behalf of the federal government, including administration of tariff differential subsidies, tariff relief packages, specific discounts and collection of statutory surcharges.

The proposal was presented before the Economic Coordination Committee of the Cabinet on April 27, 2026. The ECC referred the matter to the Cabinet Committee on State-Owned Enterprises, stating that it falls under the SOE Act, 2023.

Following the ECC decision, the Power Division sought approval of the draft agreements for further processing and execution with DISCOs, particularly in light of commitments made by Pakistan with international financial institutions.

Sources said these responsibilities have so far been carried out under the Tariff Subsidy Standard Operating Procedure issued on January 13, 2025, along with other directives issued by the federal government from time to time.

Officials said the federal government had identified the need to formally document these arrangements through PSO agreements in line with the SOE Act and the SOE Ownership and Management Policy, 2023.

The draft agreements were prepared in consultation with DISCOs and external consultants, while boards of all DISCOs have been asked to pass resolutions authorising execution of the agreements.

Under the proposed framework, the federal government, through the Ministry of Energy and Finance Division, would act as the first party, while NEPRA-licensed distribution and supply companies would act as the second party.

The agreements would cover management and administration of tariff subsidies and relief packages, along with the collection and deposit of surcharges under the National Electric Power Regulatory Authority Act.

The draft also includes provisions related to reimbursement of eligible expenses by the federal government, designation of service areas, payment mechanisms and dispute resolution through the secretaries of the Finance Division and Power Division.

Sources said the agreements would remain effective from the date of signing until expiry or earlier termination by the federal government.