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Print Print 2024-01-29

Privatisation programme: MoF opposes delisting of all Discos

  • Suggests that only those companies be delisted which are selected for the concession model
Published January 29, 2024

ISLAMABAD: Ministry of Finance (MoF) has opposed delisting of all power Distribution Companies (Discos) from the privatisation programme, suggesting that only those companies be delisted which are selected for the concession model, well informed sources told Business Recorder.

Power Division, sources said, has prepared a new proposal for the Cabinet Committee on Energy (CCoE) with respect to Discos’ fate, after withdrawal of plan regarding handing them over to provinces.

Finance Ministry, sources said, has floated this proposal, in its comments on a draft summary of Power Division titled “private sector participation through long-term concession agreements leading privatisation of Discos”.

Discos likely to seek further tariff hike

Finance Ministry, in its comments has stated that it has no objection to the proposal, in principle, considering the lack of success in either privatisation or provincialisation of Discos.

However, the following points may be considered: (i) while a comprehensive legal framework for privatisation has been in place for quite some time, it is not clear as to what framework would be adopted for the proposed concessions model.

The summary refers to extensive consultations for development of a model for private sector participation suited to the Pakistan’s ground realities; however it is not clear whether the model has been finalised .

The initiation of implementation modalities such as delisting of entities and engagement of Financial Advisors, should ideally follow the approval of a clear policy/ framework/model, rather than precede it; (ii) the current proposal is akin to a PPP model, where private parties would be given the rights to perform the functions of a public utility.

The Public Private Partnership Authority Act, 2017 provides a framework of such commercial transactions between a (public sector) implementation agency and a private party. The summary; however, does not refer to the PPPA Act 2017, nor does it indicate if any consultation has taken place with the PPPA and; (iii) a single model of privatisation/ divestment/ concessions may not suit all the Disco.

Therefore, instead of delisting all the Discos from the privatisation program, it is advisable to delist only those entities, which are selected for the concession model.

The remaining entities may continue on the privatisation list and efforts for their divestment should be made through either outright sale or through offer of majority shares via the stock exchange or by any other means considered appropriate by the Privatisation Commission.

Ministry of Privatisation has also opposed the proposal of Power Division on the basis of different arguments.

The sources said, Privatisation Ministry has examined the summary and offered following comments in terms of Rule 8 of Rules of Business, 1973: (i) The privatisation process for Discos could not materialise inter alia, owing to the proposal for provincialisation of Discos and initiation of summary for the CCI by Power Division; (ii) offering Discos through concessional model (as proposed in the summary) does not fall within the mandate assigned to CCOE through Cabinet Division’s notification of August 23, 2023.

Privatisation Ministry/ Commission has sought attention to Section 25(e) of the Privatisation Commission Ordinance, 2000 which is as follows: “The Commission shall carry out privatisation, in accordance with the prescribed procedure, through any of the following modes- (a).. (b).. (e) lease, management or concession contracts; or (f).. “ .

The above Section, read with Section 5 of the Ordinance and Cabinet Division’s Notification of September 18, clearly mandates the Cabinet Committee on Privatisation (CCoP) to undertake/ approve any proposal related to offering Discos through concession contracts. Privatisation Division/ Commission is of the considered opinion that private sector participation in Discos through long-term concession agreements shall be carried out with divestment.

“This Division does not support the idea of handing over public sector assets to a private party without having its own stake in it. This induces a perverse incentive for the concessionaire to utilise the asset as long as it stays interested to the extent of management fee and opting out of the agreement at its sweet will,” the sources quoted Privatisation Ministry saying.

Privatisation Ministry further stated this option would mean providing the private party with management control without any risk, which continues to be borne by the government.

Privatisation Ministry is of the considered view that the private party shall have a built-in-stake, albeit an insignificant one at the start, which can be increased over a period of time. This arrangement will ensure that the private party puts his stake on the line also thereby creating an incentive to improve the bottom line.

The Ministry has; however, supported the proposal of selecting one better performing and one worse-performing Disco; however, Power Division may like to indicate, in order of priority, the list of Discos on the spectrum of performance, in its summary, to take an informed decision about selection of one better performing and one poorly performing Disco initially.

Privatisation Ministry has not supported delisting the Discos from privatisation program; however, the proposal of withdrawing the summary for provincialisation of Discos has been supported.

According to Privatisation Ministry, the experience of outsourcing airports by Aviation Division has revealed that it entails GoP guarantees for performance benchmarks and losses incurred during the contract period. Power Division summary is silent on the subject. The summary is also silent about the details of model to be followed, e.g., investment to be made by concessionaire, obligations and penalties for investment, financial incentives’ structuring, monitoring and evaluation, etc.

Privatisation Ministry maintains that private sector participation in Discos through long-term concession agreements with divestment shall be initiated under the Privatisation Commission Ordinance, 2000 and not under the Public Private Partnership Authority Act, 201 7.

Wrapping up its comments, Privatisation Division has proposed that the summary, after incorporating its comments, may be placed before the CCoP in terms of provisions of the Privatisation Commission Ordinance 2000 and Notification(s) of Cabinet Division.

Copyright Business Recorder, 2024

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