Sell-off of three Discos: PC facing trust deficit in marketing

ISLAMABAD: The Privatisation Commission (PC) is reportedly facing a trust deficit in marketing the first batch of three power Distribution Companies (Discos), both domestically and internationally, due to policy inconsistencies, well-informed sources told Business Recorder.

A PC team, led by the Adviser to the Prime Minister on Privatisation Muhammad Ali, has conducted roadshows in Turkiye, Saudi Arabia, and China for the privatisation of Batch-I Discos — Faisalabad Electric Supply Company (Fesco), Gujranwala Electric Power Company (Gepco), and Islamabad Electric Supply Company (Iesco). In addition, roadshows were held in nearly eight cities across Pakistan to attract investors.

“The Privatisation Commission, along with its financial advisory (FA) team, met more than 30 local business houses and over 23 leading international investors,” sources said, adding that in Turkiye alone, 11 major business groups were given one-on-one presentations.

READ MORE: Global drive launched to market three Discos’ sell-off

The delegation also held meetings with Turkiye’s Energy Market Regulatory Authority (EMRA) and the Turkish Ministry of Energy. In Saudi Arabia and China, six and seven business houses, respectively, were engaged regarding the sale of Discos.

“Most investors expressed concerns over the post-privatisation regime, regulatory uncertainty, and policy inconsistencies,” the sources added.

Investors emphasised the need for performance-based incentives and efficient utilisation of Disco assets, with benefits shared with consumers to help reduce tariffs. Various proposals related to market liberalisation were also discussed. Despite concerns, several local and foreign investors have shown interest in the first batch of Discos.

Insiders claimed that around five local consortiums — primarily from Karachi, Lahore, and Faisalabad — have expressed interest. However, the recent detention of industrialist Mian Idrees of Sitara Textile has reportedly sent a negative signal, particularly affecting investor sentiment from Faisalabad.

Consortiums comprising PIA-linked groups, textile sector players, and a former federal minister have also shown interest in acquiring the Discos.

In a recent interview with Business Recorder, Muhammad Ali indicated that the government is likely to offer up to a 20 percent rate of return to prospective buyers through a mix of regulatory reforms, operational efficiencies, and changes in the electricity buying and selling model, along with permission for self-generation.

“We are offering investors a base return of 14–15 percent, which can be enhanced to 18–20 percent through efficiency gains,” he said.

He clarified that local investors have not demanded dollar-based tariffs, as the government has made it clear that tariffs will remain rupee-based. Given the ongoing migration of consumers away from Discos, dollar-denominated returns would not be viable, he noted.

“We have to ensure a minimum guaranteed return to investors. However, improved performance and reduced losses can push returns up to 18–20 percent,” he added.

Key performance indicators (KPIs) will cover operational efficiency, load-shedding, losses, and recovery. According to Ali, investors find the current Disco model unattractive and are seeking structural reforms.

“Investors are not interested in the existing model and want a new framework that ensures viable returns. They are comfortable with rupee-based tariffs,” he said.

Investors have also stressed the need to strengthen the National Electric Power Regulatory Authority (Nepra), arguing that its capacity is weak and its discretionary powers should be curtailed. They suggested the regulator should focus more on supervision, regulation, and monitoring.

Another major demand is permission for self-generation without government guarantees, alongside increased competition in electricity buying and selling by reducing the government’s role.

On tariffs, Ali said the privatised Discos would operate under a uniform tariff regime instead of differential tariffs, although certain investor assurances would be provided.

Investors have urged the PC to resolve outstanding issues before the bidding process begins, a commitment the Commission has acknowledged.

The deadlines for submission of Expressions of Interest (EoIs) are: Fesco — July 7, 2026; Gepco — August 7, 2026; and Iesco — September 7, 2026. Bidding will be conducted sequentially with a one-month gap, targeting October, November, and December 2026.

Investors have also sought the locking-in of Multi-Year Tariffs (MYT) for 8–10 years. The proposed structure offers a regulated MYT-backed return of around 13.2–13.4 percent with downside protection and upside potential for outperforming benchmarks.

The plan envisages 100 percent revenue recovery, 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 improve bankability, legacy payables and receivables will be settled or adjusted, selected assets and pension liabilities carved out, and land separated under long-term lease-back arrangements. The government share deposits will be converted into equity, resulting in a relatively debt-light balance sheet.

Investors may acquire between 51 percent and 100 percent equity with full management control. The final stake for each company will be determined during pre-bid meetings. Bidders may participate individually or as part of a consortium, but ownership will be restricted to one Batch-I Discos.

“We expect to complete five Disco-related transactions during FY2026-27. Three Discos will be privatised, while Hesco and Sepco will be offered under long-term concession agreements,” he added.

Copyright Business Recorder, 2026