Privatization of DISCOs:

It has been one of the most significant yet contentious issues in the problem-riddled power sector of Pakistan-privatisation of DISCOs. The current government took a full steam ahead stance in its early days, but the optimism soon waned and the issue took a back-burner.

However, recently an invitation for expression of interest (EOI) of appointment of lead manager and book runners for listing of the Gujranwala Electric Power Company (GEPCO) on the Pakistan Stock Exchange for an Initial Public Offering (IPO) of up to 15 percent of its shareholding in the DISCO has been issued.

This was in the offing for a long time with the government trying to list the more profitable and efficient DISCOs initially, which could then be used as a fulcrum to continue with privatisation of the more troublesome ones. As the National Electric and Power Regulatory Authority (NEPRA) has yet to issue its State of Industry report for 2016, this column will use the 2015 version to highlight the performance statistics of GEPCO.

The area of coverage of GEPCO extends to Gujranwala, Sialkot, Mandi Bahauddin, Hafizabad, Narowal and Gujrat with approximately 2.9 million consumers. The DISCO had the second lowest losses at 9.98 percent after the most efficient Islamabad Electric Supply Company (IESCO) whose losses stood at 9.41percent. In 2015, GEPCO sold 7055 GwH of electricity and recovered Rs88 billion with a recovery rate of 97.14 percent, a rare figure among Pakistans DISCOs.

The main problem plaguing DISCOs, as with the majority of government run enterprises in Pakistan, is poor governance, which results in high electricity theft and therefore dismal recovery of dues. This leaves the DISCOs cash strapped and unable to make the necessary investments in the dilapidated distribution infrastructure.

The governments shift in policy of starting to list the institutions that are to be privatised rather than first restructure and subsequently go for a strategic sale is a better approach. The reason is that once these DISCOs are listed, the market will inevitably bring about discipline and ensure much needed transparency because of required disclosure requirements.

Gradually private sector interest will develop once it understands the business dynamic as details such as operational capacity and margins are readily and transparently available after listing. However, there is one aspect this column feels should be taken into account when it comes to privatisation of DISCOs; and that is the independence of the regulator.

Recently, the government has been actively engaged in clipping NEPRAs jurisdiction on certain aspects of transmission and distribution companies. Although currently the government controls the DISCOs, yet once privatisation takes place it will be the job of the regulator to compel private companies to undertake the requisite investment planning and keep a check on monopolistic practices.

Therefore, the government should not be blinded by short-sightedness when proposed changes to the NEPRA Act 1997 but take a long term view of where it wants the power sector to be.