Transfer of DISCOs to provinces: PC asks govt to revisit uniform tariff

ISLAMABAD: The Privatisation Commission has proposed the government to revisit the uniform tariff prior to the transfer of DISCOs to provinces as presently inefficiencies of DISCOs are cross-subsidised.

Commenting on a draft summary of the Energy Ministry (Power Division), Privatisation Commission says with the transfer of DISCOs to the provinces, the decision on uniform tariff regime may also be revisited as presently inefficiencies of few DISCOs are being cross-subsidized either by the federal government or through further burdening the already paying consumers of other DISCOs.

The Power Division has prepared a draft summary to submit before the Council of Common Interests (CCI) for the transfer of ownership of the DISCOs to the provinces.

On July 13, 2023, the IMF’s executive board while approving $3 billion standby arrangement (SBA) for Pakistan has highlighted progress to be made on structural reforms for the energy sector’s viability along with better SOEs’ governance. Addressing the challenges of the DISCOs translate into (a) improvement in the fiscal discipline, (b) energy sector’s viability and (c) SOEs’ governance. All these aspects are integral to the SBA approved, therefore, the policy should ensure complete alignment to the commitment made.

The division comments on September 12, 1993, CCI approved the “Strategic Plan” and outline objectives that are yet to be materialised and may be addressed in the draft policy being submitted to the CCI.

The Privatisation Division further asked to consider comments on transaction-specific based on significant lessons learnt in DISCOs-related transaction.

Over the last two decades, there have been divergent decisions with regard to DISCOs privatisation, public-private partnership and provincialisation. The strategic path taken each time gets detracted or halted due to fundamental issues not envisaged at the time of decision and later not timely addressed during the transaction.

The reason mentioned in the draft summary for the transfer of DISCOs to the provinces in the losses made by DISCOs. However, there are factors in addition to the DISCOs technical and commercial losses which also cause the accumulation of circular debt.

These factors are also vital to be addressed in the policy by specifying regulatory and policy interventions needed therein. This will comprehensively address the issue of circular debt as part of this strategic direction and will also provide better clarity on the post-acquisition responsibilities of federal and provincial governments with regard to the circular debt challenge.

In view of lessons learnt in previous attempts on DISCOs transactions, the pace of the decisions and execution is of utmost important. The delay had resulted in extensive time, effort, and financial cost borne with the interest lost from the interested parties and transaction advisors.

The draft policy may accordingly have a built-in commitment from all the stakeholders with clear actions, milestones, and timelines. Needless to highlight that since the decision of the Cabinet Committee on Privatisation (CCoP) in June 2023 of the DISCOs to provinces, only Sindh province has made substantial progress by appointing a transaction advisor.

The cross-cutting linkage between the National Electric Policy 2021, National Electricity Plan and this draft policy need to be synchronized and explicitly defined. As per Section 14A of the NEPRA Act, the federal government in consultation with provincial governments, has to prepare a National Electricity Plan which is yet to be finalized. It is important that the NEP 2021, this new policy and the electricity plan complement and supplement each other on various functions and responsibilities.

In February 2023, the PC has provided copies of due diligence reports of four DISCOs prepared by financial advisors in 2015-16 which were disseminated by the Power Division to all provinces. Review comments from the stakeholders are important to better understand the DISCOs transaction from the seller as well as buyers’ perspective.

Copyright Business Recorder, 2023