The Privatisation Commission (PC) board on Thursday could not take decision on privatisation of power distribution companies due to Ministry of Energy’s failure to improve the poor condition of these companies over the past two and a half years.
The Power Division has shown its inability to even prepare a roadmap for the privatisation of power distribution companies, saying it lacked the “capacity”, showed official documents.
A meeting of the PC board ended inconclusively on the question of whether to outsource the management of electricity distribution companies as their privatisation in the short to medium term was not possible, according to sources.
The board discussed in detail the decision of the Cabinet Committee on Privatisation (CCOP) that the Power Division and Ministry of Privatisation should expedite the privatisation/ management contracts for distribution companies and submit an implementation plan, according to a Ministry of Privatisation statement. Federal Minister for Privatisation Mohammed Mian Soomro chaired the board meeting.
The board was handicapped to take any decision due to the current status of 10 government-owned power distribution companies.
The Pakistan Tehreek-e-Insaf (PTI) government had in October 2018 decided that the power distribution and generation companies would be privatised in the second phase, subject to fulfillment of four key conditions.
In April 2019, Prime Minister’s Energy Task Force laid four key conditions for the privatisation of power distribution companies. None of these could be met in the past almost two years. The privatisation of distribution companies was contingent upon development of an AMI metering programme, placement of independent boards, reduction in loss ratio to low levels and bringing the size of companies to manageable levels, according to a task force report.
The Pakistan Muslim League-Nawaz (PML-N) government had also tried to privatise the 10 power distribution companies and four power generation companies during its tenures. It entered into 14 financial advisory service agreements to complete the privatisation process but ended up paying millions of rupees in fee.
Over the past two and a half years, the losses of power distribution companies increased and their recoveries fell, according to the sources.
Special Assistant to Prime Minister on Power Tabish Gauhar has now managed to complete boards of some of these companies – a task that Energy Minister Omar Ayub could not fulfill in two and a half years.
The failure to stem losses of these companies means an increase in the circular debt, which the government is going to eliminate by increasing electricity prices. This is tantamount to punishing the honest consumers for inefficiency of the PTI government. Prime Minister’s Energy Task Force had proposed the initiation of privatisation process of two distribution companies – Islamabad Electricity Supply Company (Iesco) and Peshawar Electricity Supply Company (Pesco) – in the first phase after addressing the outstanding issues.
But, according to the sources, the Power Division said that a minimum investment of $3 billion was needed for installing AMI meters and it would need at least three years to complete the installation.
Similarly, substantial investment in reinforcement and development of distribution grids for loss reduction was also required.
The Power Division will have to undertake a detailed study to examine all the legal, technical and commercial aspects and then firm up opinion, according to the division’s correspondence with the Privatisation Commission.
Instead of undertaking the job, the Ministry of Energy has proposed that private sector consultants should be engaged. The Privatisation Commission was exploring the possibility of engaging the World Bank and USAID for the mapping exercise, according to the commission.
The Privatisation Commission has geared up for the privatisation of power distribution companies and will do its best to complete the task while remaining within its legal mandate, said Samreen Zehra, spokesperson for the Ministry of Privatisation. The PC board was briefed about the progress on transactions for House Building Finance Corporation, Jinnah Convention Centre and First Women Bank, which were at advanced stages.
Transaction structures of the said entities have already been approved by the CCOP/ cabinet. The board approved committees for the pre-qualification of potential bidders. It was decided that expressions of interest (EOI) for the privatisation of these entities would be invited by mid-February 2021.
Financial advisers are currently engaged in soft marketing to attract investors’ interest. The PC board gave its consent for the pre-qualification committees of all the three entities.
The board was briefed about the status of SME Bank, Services International Hotel, Jinnah Convention Centre and Heavy Electrical Complex. The privatisation of these entities will be completed in the current fiscal year.