ISLAMABAD: The government is likely to offer up to a 20 percent rate of return to prospective buyers of three power distribution companies (Discos) through a mix of regulatory reforms, improved operational efficiencies, and changes in the existing electricity buying and selling model, along with permission for self-generation.
This was the essence of an informal interaction between Adviser to the Prime Minister on Privatisation, Muhammad Ali with a select group of journalists.
The Privatisation Commission (PC) Board has already approved a restructuring plan for Discos to pave the way for their privatisation.
“We are offering investors a base return of 14–15 percent, which can be enhanced through efficiency gains to 18–20 percent,” Muhammad Ali said.
Responding to a question, he clarified that local investors have not demanded a dollar-based tariff, as the government has clearly conveyed that tariffs will remain rupee-based. He noted that with a significant number of consumers already exiting the Discos system, dollar-denominated returns would not be viable.
“We have to ensure a minimum guaranteed return to investors. However, if an investor improves performance and reduces losses, the return can rise to 18–20 percent,” he added.
Key performance indicators (KPIs) will be agreed upon, covering areas such as operational performance, load-shedding, losses, and recovery.
According to him, investors consider the current Disco model unattractive and are seeking structural changes. “Investors are not interested in the existing model and want a new framework that ensures viable returns. They are comfortable with a rupee-based tariff,” he said.
Investors have also emphasised the need to strengthen the power sector regulator, the National Electric Power Regulatory Authority (NEPRA), arguing that its capacity is weak and its discretionary powers should be limited. They suggested that the regulator’s role should focus on supervision, regulation, and monitoring.
Another key demand is permission for self-generation without government guarantees, along with the introduction of competition in electricity buying and selling by reducing the government’s role in these activities.
On tariffs, Muhammad Ali said that the Discos being privatised would have a uniform tariff instead of a differential one, although certain assurances would be provided to investors.
Investors have asked the Privatisation Commission to resolve outstanding issues with the government before the bidding process. The Commission has agreed and committed to working with stakeholders on these matters.
The deadlines for submission of Expressions of Interest (EoIs) are: Faisalabad Electric Supply Company (FESCO) – July 7, 2026; Gujranwala Electric Power Company (GEPCO) – August 7, 2026; and Islamabad Electric Supply Company (IESCO) – September 7, 2026. Bidding will be conducted sequentially with a one-month gap, targeting October, November, and December 2026.
“We have to address all key issues before October 2026,” he said.
Investors have also sought locking in of Multi-Year Tariffs (MYT) for 8–10 years. The proposed structure offers a regulated MYT-backed return of approximately 13.2–13.4 percent with downside protection, along with upside potential for outperforming regulatory benchmarks.
The plan envisages around 100 percent revenue recovery for each company, compared to the industry average of 96.6 percent, and transmission and distribution (T&D) losses in the range of 8.6–10.6 percent versus the national average of 18.1 percent.
To make the entities bankable, legacy payables and receivables will be settled or adjusted, selected assets and pension liabilities carved out, and land separated with long-term lease-back arrangements. Government share deposits will be converted into equity, resulting in a relatively debt-light balance sheet at the outset.
Investors may acquire between 51 percent and 100 percent equity, with full management control. The exact stake for each company will be finalised during pre-bid meetings. Bidders may participate individually or as part of a consortium, but ownership will be restricted to one Batch-I Disco.
Muhammad Ali said the government has already engaged local investors across various cities and plans to approach investors in Saudi Arabia, Turkey, and China to attract foreign participation.
Responding to another question, he said the government is structuring transactions to protect consumer interests while ensuring adequate comfort for investors.
“Privatisation cannot proceed unless investors are assured that their interests are protected. We will provide this comfort through careful transaction structuring,” he said.
He emphasised that Pakistan needs to actively market its privatisation programme. Currently, three Discos are being offered, while eight more remain in the pipeline.
“We expect to complete five Disco-related transactions during FY2026-27. Three Discos will be privatised, while HESCO and SEPCO will be offered on long-term concession,” he added.
Copyright Business Recorder, 2026
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