PACRA Assigns Initial Entity Ratings to Faisalabad Electric Supply Company Limited

Faisalabad Electric Supply Company Limited (“FESCO” or “the Company”) is one of the ten government-owned distribution companies (DISCOs). The assigned ratings take comfort from the sovereign ownership of Government of Pakistan (GOP) under the Ministry of Energy – Power Division. The ratings also underpinned by its strategic significance as a key power utility to distribute electricity across Faisalabad and seven surrounding districts in Central Punjab, with its monopoly position within the service territory ensuring insulation from direct competition. As of May 2025, FESCO serves over 5.7 million consumers. The customer base is predominantly domestic, representing approximately 89% of total connections. Commercial consumers account for around 6%, industrial customers make up about 1%, while the remaining 4% falls under other categories. The Company's revenue is solely generated through electricity distribution, with the regulated pricing mechanism resulting in any difference between the allowed tariff and the consumer-end price being billed as a Tariff Differential Subsidy (TDS) borne by government and recorded in FESCO's topline. During FY25, the units sent out by FESCO increased marginally by approximately 1.7%, reaching 14,428 GWh, compared to 14,191 GWh in FY24. Transmission and distribution (T&D) losses improved, declining to 8.89% in FY25 from 9.82% in the previous year. Additionally, the Company’s recovery ratio showed an improvement over FY24 levels. The FESCO’s business risk profile reflects a low to moderate risk, primarily supported by its exposure to government entities and customer segments with reasonable recovery ratios, further backed by security deposits held against connections. The Company’s authority to disconnect the connections in case of non-payment also helps to improve the recoveries. Operational risk is strengthened by FESCO’s extensive network and the absence of alternate electricity distributors within its territory. However, the growing trend of solarization may introduce emerging risks to demand. Liquidity risk on the balance sheet remains low across timing buckets; however, delays in collections particularly from government-backed receivables can introduce some liquidity pressure. This risk is partially offset through netting arrangements or adjustments against government payables for electricity purchases. Pricing risk is considered minimal, as FESCO operates under a well-defined regulatory regime based on the Cost-Plus Tariff model, with end-user tariffs determined by the NEPRA. The Company also benefits from a strong cash conversion cycle, with working capital requirements largely managed through internally generated funds. As of 1HFY25, FESCO held short-term investments of PKR 17,500 million, indicating sound liquidity. The Company has no market-based borrowings on its balance sheet, with its long-term debt comprising relent loans provided by the GOP. The leverage ratio improved significantly to ~5% in 1HFY25, down from around 10% in FY24 and 78% in FY23, supported by asset revaluation reserves and equity infusions from the GOP. The Company continues to take benefit of financial, and managerial support from the government.
The assigned ratings hinge on FESCO’s ability to maintain sound financial management, ensure timely tariff adjustments, and improve operational performance—particularly by reducing T&D losses. However, revenue may be impacted by delays in tariff revisions and declining demand due to rising electricity costs and increased solar adoption. Additionally, the government's ongoing privatization drive for SOEs, including FESCO, remains a key factor in its future outlook.

About the Entity
FESCO, a public limited company incorporated on March 21, 1998, is headquartered in Faisalabad. It took over operations of the former FAEB from WAPDA, including all assets and liabilities. FESCO distributes and supply electricity through 132-kV and 66-kV grid stations across eight Central Punjab districts. FESCO is led by CEO Mr. M Aamer and governed by a Board of Directors, chaired by Mr. Omer Farooq Khan.