ISLAMABAD: Privatisation Commission (PC) has decided to hire a Financial Advisor Consortium (FAC) to carry out an analysis of each power Distribution Company (Disco), keeping in view the peculiar state of affairs, sources in Power Division told Business Recorder. The decision was taken at a recent meeting of PC Board presided over by Minster for Privatisation/ PC Chairman Mohammadmian Soomro.
The meeting was apprised that in compliance of CCoP decision dated January 04, 2021, the Power Division had provided requisite information / clarifications to proceed further.
Further, Power Division provided following objectives for private sector participation in management of Discos: (i) reduce Aggregate Technical and Commercial (ATC) losses of each Disco to the level allowed by Nepra; (ii) improve quality of services delivery and consumer satisfaction; and (iii) raising of monetary proceeds is not a consideration.
The Board was apprised that a workable plan was discussed in several consultative meetings between Power Division and other stakeholders. Consequently, in view of complexities of the transaction, a "Working Group" of stakeholders was constituted to identify optimal and prudent roadmap, including transaction structure and sequencing.
In this regard, a team of local and international experts was also taken on board with support from World Bank. Draft report prepared by the Working Group was placed before the Board, along with key highlights and performance indicators of the Discos.
The Board was informed that the report proposes a vibrant communication strategy and early engagement with Discos employees/ unions, regulatory certainty & predictability, and multi-year tariff regime as key steps for moving forward. It also recommended that there should be a moratorium on layoffs of Discos staff for a specified number of years subsequent to the induction of private participation.
Various "prior actions" from the GoP stakeholders have also been highlighted which are as follows: A- Nepra; (i) notify licencing regulations; (ii) notify separate performance standards for distribution and supply (from existing standards); (iii) notify power acquisition /power procurement regulations applicable to suppliers; (iv) modify current tariff guidelines to accommodate distribution licencee and supplier of last resort; (v) define eligibility criteria for customers who can choose their supplier and; (vi) timely determination of distribution tariffs and supply tariffs in response to petitions by Discos.
B- Ministry of Energy; (i) notify licence eligibility criteria rules; (ii) modify and notify tariff rules to address uniform tariffs; (iii) clarify subsidies for Nepra consideration and in notifying tariffs; (iv) notify guidelines on how Discos can request and recover subsidies; (v) clean up Discos balance sheets through recommended actions; (vi) complete the process for issuance of shares in Discos and; (vii) develop future mechanism for timely payments against government dues (TDS, FATA/AJK etc,).
The Working Group submitted the following recommendations to the Board of Directors: (i) concession model as the main form of bringing private participation for eight Discos, other than Qesco & Tesco and; (ii) management contract for two Discos i.e. Qesco and Tesco.
The Board deliberated on broad objectives for private sector participation provided by Power Division, key lessons from the previous privatisation attempts, available options for private sector participation, key actions for a robust regulatory and licencing regime, actions for a predictable tariff regime, precise roadmap and indicative timelines presented in the report containing strategy and roadmap by the working group.
SAPM on Power and Petroleum, Tabish Gauhar informed the Board regarding on-going measures and actions to improve the power sector. He clarified that government will continue to own the Discos assets as well as any new assets created by the private partner under concession or management contract.
He maintained that instead of eight Discos, five better performing Discos of Punjab may be considered for concession and remaining five Discos may be considered for management contract mode.
He also stressed the need for cleaning the balance sheets of Discos by clearing loan liabilities and receivables from the Government departments with equity, which would help the Discos borrow from banks for their functional restructuring.
The Board examined the various modes of privatisation as per Privatisation Commission, Ordinance 2000, and thoroughly deliberated on options, pros and cons of Concession and Management Contract for Discos in the light of report by the Working Group.
The PC Board after deliberations, recommended the following course of action for consideration and approval of the Cabinet Committee on Privatisation (CCoP): (i) Concession or Management Contract are the most optimal options under the prevailing conditions of Discos; (ii) a Financial Advisor Consortium (FAC) of international repute comprising of technical, financial, legal & regulatory experts shall be hired by PC on priority basis. It will be ensured that a well experienced and professionally competent consortium is taken on board. The Terms of Reference for hiring of FAC will be finalised by PC in consultation with stakeholders; (iii) FAC will be required to carry out an analysis of each Disco, keeping in view the peculiar state of affairs, including customer base, revenue stream, technical & operational asset base, financial health, investment requirements, legal & regulatory aspects etc.; and (iv) on the basis of due diligence review, the FAC will recommend a specific transaction structure (Concession or Management Contract) for each Discos separately, along with sequencing of the transaction.
According to the plan, five Punjab-based financially sound Discos i.e. Islamabad Electric Supply Company (Iesco), Gujranwala Electric Power Company (Gepco), Lahore Electric Supply Company (Lesco), Faisalabad Electric Supply Company (Fesco) and Multan Electric Power Company (Mepco) will be given to the private sector under ten year’s Concession Agreements (CAs).
Under the concession agreement, the party/ parties which will acquire the company for ten years, will have to invest from own resources to improve the distribution and transmission infrastructure.
The other five loss making and financial weak Discos like, Hyderabad Electric Supply Company (Hesco), Sukkar Electric Power Company (Sepco), Quetta Electric Supply Company (Qesco), Peshawar Electric Supply Company (Pesco) and Tribal Electric Supply Company (Tesco) will be given to the investors on the basis of management contracts for five years.
Under the management contracts, the government will invest in the five financially weak companies to improve their infrastructure, reduce losses and improve recovery. The management investor will get its share in savings to be achieved through reduction in losses and improvement in recovery.
The sources said, though Sindh-based Discos will be given to the private sector, a reasonable share will also be given to Sindh government so that all the decisions are taken with its consent.
Copyright Business Recorder, 2021