Transition to green energy sources carries risk for power sector State Owned Enterprises

ISLAMABAD - The transition to green energy sources carries a risk for power sector State Owned Enterprises (SOEs), as an estimated 3.6 per­cent annual decline in electric­ity consumption would reduce SOEs revenues by Rs196 billion in FY2026 and Rs604.6 billion cumulatively over FY2026-28.

The government support to SOEs remained Rs4,533 billion from FY2019-2023, though the estimated fiscal burden put by loss-making SOEs stands at Rs6,016 billion during the same period, and it is assumed that it may further increase from FY2026-28, due to de­clining annual real dividend by 6.1% transferred by SOEs to the government, approximate­ly two times higher govern­ment support to SOEs, a prob­ability that SOEs cannot repay their existing debt and on-grid electricity consumption de­creases annually by 3.6%, of­ficial documents revealed.



SOEs present significant fis­cal risks due to both revenue shortfalls and expenditure pres­sures during the FY 2026 to FY 2028. If these SOE-related fiscal risks are not addressed, they can crowd out essential public investments and raise long-term sustainability concerns for government finances in the future. Several scenarios have been assumed related to SOEs, which includes scenario 4A, 4B4,C and 4D.

Contrary to the baseline, scenario 4A assumes a declining annual real dividend by 6.1% transferred by SOEs to the government. Scenario 4B as­sumes approximately two times higher government support to SOEs over and above what is given in budget books and con­sidered under the baseline.

Sce­nario 4C assumes that there is a 40% probability that SOEs can­not repay their existing debt. Fi­nally, Scenario 4D assumes that on-grid electricity consumption decreases annually by 3.6%.

Ishrat Ali Lohar elected as President SHCBA Hyderabad The fiscal impact of scenario 4A is estimated through several steps. The average growth rate is found to be -6.1%.

In scenario 4A, it is assumed that the real dividend will grow at the aver­age rate observed over the last eight years, contrary to the base­line where the dividend grows at 10%, consistent with the last two years’ growth. The dividend is projected to be Rs89.7 billion (compared to Rs116.

1 billion under the baseline) in FY2026 and Rs. 288.2 billion (compared to Rs.

414.1 billion in the base­line) cumulatively in FY2026-28. The dividends in this sce­nario are subtracted from those in the baseline scenario, and the resulting difference is consid­ered a fiscal risk as this part of non-tax revenue would hardly materialize.

This fiscal risk is estimated to be Rs. 26.4 billion for FY2026 and Rs.

125.9 billion cumulatively for FY2026-28. This amount is deducted from non-tax revenues, lead­ing to an increase in the fiscal deficit, which in turn raises borrowing requirements and adds to interest costs.

The fis­cal deficit in this scenario is found to be Rs137 billion high­er than the baseline cumula­tively in FY2026-28. The extra fiscal deficit generated above the baseline is considered a fis­cal risk. Talking about scenario 4B, it said that there are 17 loss-making SOEs, which need continuous support from the government.

The fiscal burden is estimated from support to these loss-making SOEs using a comprehensive methodology conducted at SOE level to esti­mate SOE-related fiscal risks in Pakistan. The required support is projected to be Rs1980 bil­lion for FY2026 and a cumula­tive Rs6,726 billion in FY2026-28, approximately 1.5% of GDP.

On the other hand, government support provided to SOEs in the form of subsidies, grants, equity injections, loans, and guarantees, extracted from budget documents, is found to be 1.1% of GDP over the past five years. Assuming this ratio prevails over the medium term, government support is pro­jected to be Rs1452 billion for FY2026 and Rs.

4932 billion for FY2026-28. Net fiscal risk is estimated to be the difference between the projected annual fiscal burden estimated at SOE level and the baseline govern­ment support. It is found to be Rs.

528 billion for FY2026 and Rs. 1794 billion for FY2026-28. Eight wounded as police, protesters clash over canals project About scenario 4C, the docu­ments said that SOEs have a to­tal outstanding debt of Rs9,196 billion.

Assuming the average maturity of the debt is five years, this debt must be repaid at 20% annually, which amounts to ap­proximately Rs1,839 billion each year. However, due to the fiscal risks associated with SOEs, there is an assumed 40% chance that they may be unable to meet their debt obligations, exposing the government to 40% of SOE debt. This translates to the govern­ment paying 40% of the annual debt maturity, which equates to an expected value of Rs736 bil­lion per year.

It is important to note that the baseline projec­tion does not account for this potential risk. If such a situation arises, it could further increase the fiscal burden, as the govern­ment would need to borrow this amount, resulting in inter­est payments due in subsequent fiscal years. The increase in the federal fiscal deficit is estimated at Rs736 billion in FY2026 and Rs2468 billion in FY2026-28 (0.

4% of cumulative GDP). Cop arrested for motorcycle theft in Karachi, confesses to stealing 125 bikes In scenario 4D, electricity consumption growth is consid­ered to be -3.6% annually.

Using this growth rate, medium-term on-grid electricity demand (in GWh) is projected to decrease by 11,910 GWh cumulatively in FY2026-28. This reduced elec­tricity demand is multiplied by the price per GWh, adjusted for inflation, to estimate the rev­enue loss for power sector SOEs. It is found to be Rs196 billion in FY2026 and Rs604.

6 billion for FY2026-28. This revenue loss increases the demand for bor­rowing and the resulting interest payments. Therefore, the federal fiscal deficit increases by Rs196 billion compared to the baseline in FY2026 and Rs.

675 billion cumulatively for FY2026-28. Re­garding the remedial measures to address these risks, the docu­ments said that the government is committed to privatizing certain loss-making SOEs and reform­ing the governance structures of others to enhance efficiency. Key measures include improving the PSO (Public Sector Obligations) framework in accordance with the SOE Act of 2023, tendering PSOs to reduce costs, and imple­menting clear dividend policies.

Two young men drown in canal Tags: transition green energy sources.