Faisalabad Electric Supply Company Limited ("FESCO" or "the Company") is a public limited company incorporated on March 21, 1998, under the Companies Ordinance, 1984 (now the Companies Act, 2017). The Company’s registered office is located on West Canal Road, Abdullahpur, Faisalabad. FESCO operates various 132-KV and 66-KV grid stations and maintains offices across eight districts of Central Punjab.

FESCO is established by taking over all properties, rights, assets, liabilities, and obligations of the Faisalabad Area Electricity Board (FAEB), which was previously part of the Pakistan Water and Power Development Authority (WAPDA). The transfer also included other specified assets and liabilities as mutually agreed.

Prior to the amendment of the NEPRA Act in May 2018, the electricity distribution function encompassed both the physical infrastructure (commonly referred to as the wire business) and the sale of electricity to end-consumers. However, the NEPRA (Amendment) Act, 2018, introduced a structural change by separating the sale of electricity from the distribution function. FESCO currently distributes and supplies electricity to approximately 5.7 million customers within its licensed territory, serving a population of over 26 million.

The principal activity of the Company is the distribution and supply of electricity to the public within its defined geographical boundaries. This activity is carried out under a Distribution and Electric Supply License granted by the NEPRA in accordance with the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (NEPRA Act). The Company’s geographical service area comprises eight districts of Central Punjab, namely: Faisalabad, Sargodha, Mianwali, Khushab, Jhang, Bhakkar, Toba Tek Singh, and Chiniot.

FESCO is wholly owned by the Government of Pakistan (GOP) through the Ministry of Energy (Power Division), with its shares registered in the name of the President of Pakistan.

FESCO has remained under the ownership of the GOP. Despite this continued public ownership, the privatization of FESCO has been part of the government’s broader policy agenda for several decades.

The process was initiated when the Council of Common Interest (CCI) approved the phased privatization of thermal power generation units (GENCOs) and distribution companies (DISCOs) on 12 September 1993. This policy direction was reaffirmed by the Cabinet Committee on Privatization (CCOP) on 17 February 2009 and subsequently ratified by the Federal Cabinet on 06 January 2010. Further support came from the President and Prime Minister of Pakistan during a presentation by the Ministry of Privatization on 22 November 2010, with final ratification by the CCI on 28 April 2011.

In October 2013, CCOP included FESCO among 68 Public Sector Enterprises (PSEs) identified for privatization. Initially, on 02 November 2015, the Privatization Commission (PC) invited Expressions of Interest (EOIs) for a strategic sale of 74% of FESCO's shareholding, along with management control. However, due to strong opposition from various stakeholders, the Government reconsidered its approach, shifting from strategic sale to divestment through capital markets, while retaining management and majority ownership.

Accordingly, in its meeting held on 14 July 2016, CCOP approved the initiation of the Initial Public Offering (IPO) process to list a portion of FESCO’s shares on the stock exchange. The IPO aimed to improve transparency, broaden public ownership, and strengthen corporate governance without compromising Government control.

Later, in light of the financial challenges in the power sector, including circular debt and operational inefficiencies, the Privatization Commission, in its meeting on 02 October 2017, revisited the privatization approach and recommended returning to the strategic sale model.

Most recently, the Ministry of Energy (Power Division) reaffirmed the GOP’s commitment to privatization through notification dated 30 July 2024, and in a subsequent letter dated 28 August 2024, directed FESCO, along with few other distribution companies, to compile preliminary information to facilitate the privatization process. While FESCO remains under full Government ownership, its inclusion in successive privatization agendas reflects an ongoing commitment to reform and restructuring within the energy sector.

FESCO has established itself as an efficient electricity distribution company, operating since 1998 and supplying power to one of the country’s key urban centers—Faisalabad—along with surrounding districts. Entirely owned by the GOP, FESCO benefits from the State’s extensive experience and institutional financial support.

The GOP is actively working toward the development of a competitive electricity market through the implementation of the CTBCM (Competitive Trading Bilateral Contract Market) model. As this market structure evolves, FESCO is expected to operate with greater independence and efficiency in a liberalized environment, relying less on government support.

Additionally, the privatization process is underway. Once completed, it may open new avenues for FESCO’s business direction and operational approach, depending on the priorities and strategy of the new ownership.

FESCO is currently under sovereign ownership, and given its strategic importance as a major electricity distributor in one of the key regions of the country, the likelihood of continued government support remains high. This support, particularly in the form of financial assistance, has been demonstrated in the past through capital injections when needed.Additionally, FESCO receives subsidies from the Government to facilitate the provision of electricity at discounted rates to low-income consumers. These subsidies include components such as the Tariff Differential Subsidy (TDS), AQTA Subsidy, Zero-Rated Industrial Rebate, and the Kissan Package Subsidy Income.

The Board of Directors comprises nine members, including five independent directors, three non-executive directors and one executive director, with two female members among the total composition. The Board is appointed by the Ministry of Power in July 2024 for the period of 3 years.

The members of the Board are experienced professionals from diverse backgrounds. Mr. Omer Farooq Khan, a businessman, serves as the Chairman of the Board and has been associated with FESCO from July 2024. The remaining members bring expertise in law, public service, and business, collectively supporting FESCO’s strategic direction and governance.

The Board has constituted five committees to support the Company’s operations and provide strategic guidance. These committees are:

1. Audit, Finance, Investigation, Financial Risk Management & Internal Control Committee
2. HR, Admin, Legal & HSE Committee
3. Technical Initiatives, Development, Operational and Procurement Committee
4. Policy, Strategy, Marketing & Risk Management Committee
5. Customer Services and IT Initiatives Committee

The Audit and Technical Committees comprise five members each, while the remaining committees consist of six members. Each committee is chaired by a relevant and experienced Board member, and the Terms of Reference (ToR) for each committee are properly documented.

Meetings are convened as required by the Board of Directors. However, in accordance with governance practices, the Audit Committee, Customer Services Committee, and Risk Management Committee are required to meet at least once every quarter. The attendance of Board members in committee meetings during the year remained above satisfactory.

Riaz Ahmad & Company, Chartered Accountants, serve as the external auditors of the Company. They have issued an unqualified audit opinion on the financial statements for FY 2024. However, certain matters were highlighted in the Emphasis of Matter paragraph; these did not modify or affect the overall audit opinion.

The Company's financial statements are prepared in accordance with the requirements of the Companies Act, 2017, and applicable International Accounting Standards (IAS). Additionally, the management prepares quarterly accounts to ensure regular financial reporting and oversight.

FESCO has a well-defined and properly documented organizational structure designed to support effective governance, operational efficiency, and accountability. At the top of the hierarchy is the Chief Executive Officer (CEO), who is responsible for the overall management and strategic direction of the Company. The CEO, with consolidated input from all functional departments, reports directly to the Board of Directors.

Supporting the CEO are the heads of key departments, including the Chief Financial Officer (CFO), General Managers - Operations, Customer Services, Technical Services, Chief Engineer Planning & Designing (P&D), Dirctor General, HR, Admin, IT, and Chief Internal Auditor (CIA). These departments are led by experienced professionals and are further supported by competent and skilled team members who bring specialized expertise to their respective functions.

Additionally, the Company Secretary and the Chief Internal Auditor maintain independent reporting lines directly to the Board of Directors, ensuring transparency and compliance with corporate governance requirements. Top of FormBottom of Form

Mr. Muhammad Aamer, who holds a B.Sc. in Electrical Engineering and an MBA in Finance, serves as the CEO of FESCO. He has been associated with the Company since 1995, bringing decades of industry experience and institutional knowledge to the role. Mr. Nazir Ahmed, the CFO, is a Fellow Public Finance Accountant (FPFA) and a Fellow Chartered Management Accountant (FCMA). He has been with FESCO since 1992.

Mr. Ihtisham Ullah serves as the Chief Internal Auditor. Other key members of the leadership team include Mr. Umer Hayat (GM Operations), Mr. Muhammad Rafique (GM Technical), Mr. Mubashar Hayat Rao (GM Commercial & Customer Services), and Mr. Muzaffar Abbas (Company Secretary)

The leadership team also comprises Mr. Ghulam Mujtaba Khan (Director General HR), Mr. Muhammad Munawar Khan (Director General Admin), Mr. Muhammad Imad Ullah (Director General IT), and Mr. Farrukh Aftab (Director General Law).

Additionally, Ms. Sadaf Naz, serving as Director General (MIRAD), plays a pivotal role in overseeing FESCO’s strategic initiatives under the DISCOS reform plan, particularly in relation to the implementation of the Competitive Trading Bilateral Contract Market (CTBCM) framework. She also manages tariff preparation and regulatory matters with NEPRA.

All senior management members have had long-standing associations with the Company and are supported by experienced teams under the leadership of the CEO. Clear roles and responsibilities have been formally defined and documented, ensuring structured governance and efficient decision-making across all operational areas.

FESCO’s management team demonstrates effectiveness in its role, supported by relevant experience, professional qualifications, and a long-standing association with the Company. The team is responsible for overseeing key functional areas, allowing the Company to maintain operational continuity, comply with regulatory requirements, and implement strategic initiatives in an organized and structured manner.

The management’s role is further reinforced by the Board of Directors through its specialized committees, which provide oversight and strategic guidance on critical matters. This governance framework supports informed decision-making and helps ensure alignment with the Company’s overall objectives.

FESCO has implemented a comprehensive Enterprise Resource Planning (ERP) system designed to streamline and enhance its core business operations. The ERP system is structured around four major modules:

i) Financial Reporting Module – Enables accurate and timely financial analysis, budgeting, auditing, and regulatory compliance through automated reporting and data consolidation.

ii) Human Resources (HR) Module – Manages the entire employee lifecycle, including recruitment, payroll, attendance, performance evaluations, and benefits administration, contributing to efficient workforce management.

iii) Transaction Module – Handles day-to-day operational transactions such as procurement, inventory management, and service processing, ensuring smooth internal workflows.

iv) Management Module – Provides tools for planning, monitoring, and decision-making at the executive level, supporting strategic management and organizational performance.

In addition to the ERP modules, FESCO employs an integrated billing system for its consumer services. This billing system is fully synchronized with the ERP platform, allowing for real-time data exchange, accurate billing, customer account tracking, and efficient revenue management. The integration ensures transparency, minimizes errors, and enhances customer satisfaction through reliable and timely service delivery.

FESCO maintains an adequate control environment, supported by well-defined policies and procedures. The Company’s internal audit function conducts regular reviews of financial, operational, and compliance controls to ensure adherence to internal standards and regulatory requirements.

In addition to routine audits, dedicated teams have been established to target high-loss areas, aiming to reduce distribution losses and improve efficiency. A comprehensive audit program—distinct from standard financial audits—has also been implemented. This program covers a broad range of operational areas, including human resources, procurement, and quality assurance, with the objective of identifying potential risks, preventing corruption, eliminating ambiguities, and ensuring transparency. These proactive measures are designed to strengthen internal controls and enhance the overall governance of the Company.

Pakistan’s power sector functions under a centralized model, with the Central Power Purchasing Agency Guarantee (CPPA-G) serving as the sole buyer of electricity for the country’s eleven Distribution Companies (DISCOs). These DISCOs are responsible for the distribution and supply of electricity to end consumers, management of infrastructure, billing, and revenue collection. They provide demand forecasts to NEPRA with a copy to CPPA-G and ISMO (Independent System & Market Operator), which procures electricity from both government-owned generation companies (GENCOs) and Independent Power Producers (IPPs).

The National Electric Power Regulatory Authority (NEPRA) oversees the sector’s regulatory framework, including procurement mechanisms and tariff setting, based on the costs of generation, transmission, and distribution. While NEPRA determines cost-reflective tariffs, the government enforces a uniform tariff across all DISCOs to ensure affordability and equity, bridging the cost gap through subsidies.

Despite this structure, the sector faces persistent structural challenges, most notably the accumulation of circular debt. In response, the government and stakeholders are pursuing several reform initiatives aimed at improving efficiency and reducing losses. These include the privatization of DISCOs, enhanced operational management, deployment of Advanced Metering Infrastructure (AMI), and the installation of Aerial Bundled Cables (ABC) to curb electricity theft and minimize technical losses.

FESCO is one of the eleven state-owned DISCOs operating under the Ministry of Energy (Power Division) in Pakistan. Among these, FESCO is generally regarded as one of the better-performing DISCOs, consistently maintaining a strong position in terms of operational efficiency, lower transmission and distribution (T&D) losses, and high bill recovery ratios. Compared to other DISCOs, particularly those in high-loss regions such as PESCO, HESCO, SEPCO, and QESCO, FESCO demonstrates more effective financial and operational management, resulting in a relatively lower contribution to the country’s circular debt.

FESCO is typically ranked among the top three DISCOs, alongside Islamabad Electric Supply Company (IESCO) and Gujranwala Electric Power Company (GEPCO). Its service territory includes Faisalabad—one of Pakistan’s major industrial centers—and surrounding districts, adding to its strategic importance within the national electricity distribution network. Given its consistent performance and strong operational framework, FESCO plays a vital role in the government’s broader plans for sectoral reforms and privatization.

FESCO’s financial performance over the past three fiscal years reflects a consistent upward trend in revenue, largely driven by tariff adjustments rather than increased electricity demand. In FY 2023, revenue grew by 12.7% compared to FY 2022, reaching PKR 380,864 million, including TDS PKR 50,990 million, while TDS in FY22 stood at PKR 57,945 million with a modest 1.1% increase in units sold, indicating stable consumption patterns and possibly improved recovery efforts. In FY 2024, revenue further increased by 21.0% to PKR 461,024, including TDS PKR 26,249 million substantially lower than previous years, while units sold declined by 3.2%, falling to 14,190.93 GWh. This divergence suggests that revenue growth was primarily influenced by upward revisions in tariff rates and reduced reliance on government subsidies, rather than volume growth.

The decline in units sold is also partly attributed to the increasing shift of consumers toward rooftop solar installations, which has begun to impact grid-based consumption. As more consumers adopt net metering and distributed generation, especially in urban and industrial areas, the trend is likely to continue, leading to further moderation in energy demand from the distribution grid.

The similar trend continues in the first half of FY 2025, where FESCO reported revenue of PKR 273,831 million against units sold of 7,752.520 GWh. In comparison, during the first half of FY 2024, revenue stood at PKR 243,710 million with 8,149.790 GWh of electricity sold. This reflects a 12.4% increase in revenue despite a 4.9% decrease in units sold, indicating that the revenue growth was primarily driven by higher average tariffs rather than increased electricity consumption.

Additionally, TDS from the GOP amounted to PKR 38,893 million in 1HFY25, significantly higher than PKR 14,565 million in 1HFY24.

In FY24, the Company purchased a total of 15,736.45 GWh of electricity, including 103 GWh through net metering, compared to 16,087.74 GWh in FY23 and 15,984.48 GWh in FY22, reflecting a marginal decline in volumes over the past two years. Despite the slight decrease in units purchased, the average cost of electricity rose significantly, reaching PKR 27.16/kWh in FY24, up from PKR 22.48/kWh in FY23. However, a downward trend in the purchase price was observed in 1HFY25, where the average cost declined to PKR 24.45/kWh, compared to PKR 24.94/kWh in 1HFY24.

The total cost of electricity purchased in 1HFY25 reduced to PKR 200,943 million, down from PKR 217,411 million in the same period last year. For the full year FY24, the cost stood at PKR 424,588 million—significantly higher than PKR 360,599 million in FY23—primarily driven by increased tariffs rather than higher volumes.

As a result of these dynamics, gross margins improved substantially to 26.6% in 1HFY25, up from 7.9% in FY24 and 5.3% in FY23. This expansion reflects lower purchase prices and relatively stable or slightly higher selling prices, supported in part by government subsidies. Net margins followed a similar trajectory, rising to 19.5% in 1HFY25, compared to 0.2% in FY24 and a negative 3.1% in FY23, indicating a marked turnaround in profitability and overall operational efficiency.

FESCO is among the better-performing electricity distribution companies in Pakistan in terms of operational efficiency, characterized by lower distribution losses and a high bill collection rate. Its primary service area is Faisalabad, often referred to as the "Manchester of Pakistan" due to its strong textile industry presence. The Company has been identified by the GOP, along with two other distribution companies, for potential privatization.

The Company’s customer base is predominantly domestic, accounting for ~89% of total consumers, followed by commercial (6%), industrial (1%), and other categories (4%).

In line with the Competitive Trading and Bilateral Contracting Market (CTBCM) framework and the National Electricity Policy aimed at market liberalization, FESCO has set up a Market Implementation and Regulatory Affairs Department (MIRAD). This unit serves as the company’s interface with the evolving power market and regulatory environment, supporting functions such as power procurement planning, contract management, compliance, and coordination with NEPRA and other sector entities. MIRAD plays a key role in ensuring FESCO’s readiness for competitive market operations and regulatory obligations.

The business model of electricity distribution companies typically does not involve significant inventory, except for minimal store items used for maintenance and repairs. Their working capital cycle primarily consists of receivables from consumers against electricity sales, subsidy receivables from the government, and payables to CPPA-G for power purchases. FESCO's recovery ratio remained strong at 97% in FY24, reflecting efficient cash collection and effective receivables management.

Receivables stood at PKR 60,758 million in 1HFY25, compared to PKR 76,116 million in FY24. On the other hand, payables amounted to PKR 52,168 million in 1HFY25 and PKR 123,578 million in FY24, including outstanding payments to CPPA-G of PKR 20,312 million and PKR 89,103 million, respectively. The Company typically manages its working capital by utilizing customer collections to meet operational needs and often delays payments to CPPA-G. Notably, it does so without relying on short-term borrowings, demonstrating strong internal cash flow management.

In 1HFY25 and FY24, the Company demonstrated a strong debt coverage ratio, driven by a significant improvement in Free Cashflows from Operations (FCFO). FCFO rose sharply to PKR 50,554 million in 1HFY25, compared to PKR 9,194 million in FY24 and PKR 1,420 million in FY23. This notable increase is primarily attributed to improved profitability, including the recognition of a substantial portion of Tariff Differential Subsidy claims related to customer tariff adjustments, which were booked during the current period. Additionally, the Company maintains healthy liquidity on its balance sheet in the form of short-term investments and cash reserves, further strengthening its financial flexibility.

In 1HFY25, the Company reported a notable improvement in its capitalization profile. The gearing ratio improved to 5.1%, down from 10.1% in FY24 and 78.3% in FY23. This positive shift in capitalization metrics was primarily driven by an increase in the equity base, which included a revaluation reserve of approximately PKR 49 billion recognized in FY24, along with consistent equity injections by the GOP. As a result, the Company’s paid-up share capital increased from PKR 34 billion in FY22 to PKR 46 billion in 1HFY25. Additionally, the Company has no short-term borrowings and only minimal long-term debt, which consists of concessional loans obtained from the government, further reflecting its strong capital structure and low reliance on external financing.