ISLAMABAD: The government’s plan to privatise the first batch of three electricity distribution companies (Discos) is facing investor skepticism, with concerns over regulatory uncertainty and inconsistent government policies creating a trust deficit during the marketing process, informed sources told Business Recorder.
The Privatisation Commission (PC), led by the Prime Minister’s Adviser on Privatisation Muhammad Ali, has conducted roadshows in Türkiye, Saudi Arabia, China, and several cities across Pakistan to attract investors for the sale of Faisalabad Electric Supply Company (Fesco), Gujranwala Electric Power Company (Gepco), and Islamabad Electric Supply Company (Iesco).
According to sources, the PC and its financial advisers held meetings with more than 30 local business groups and 23 international investors. In Türkiye alone, the delegation conducted one-on-one presentations for 11 major business groups and also met officials from the country’s Energy Market Regulatory Authority (EMRA) and the Ministry of Energy. Similar engagements were held with six business groups in Saudi Arabia and seven in China.
Despite interest from several domestic and foreign investors, most participants raised concerns over the post-privatisation framework, regulatory stability, and policy consistency. Investors stressed the need for a predictable regulatory environment, performance-based incentives, and efficient utilisation of Disco assets, with operational gains ultimately benefiting consumers through lower electricity tariffs.
Sources said nearly five local consortiums, mainly from Karachi, Lahore, and Faisalabad, have shown interest in acquiring the utilities. However, the recent detention of industrialist Mian Idrees of Sitara Textile has reportedly weakened investor confidence, particularly among Faisalabad-based businesses.
Other interested groups include consortiums linked to the aviation sector, textile industry, and a former federal minister.
In a recent interview, Muhammad Ali said the government expects to offer investors potential returns of 18-20 percent through a combination of regulatory reforms, operational improvements, and changes to the electricity purchasing and distribution model.
“We are offering a base regulated return of around 14-15 percent, which can increase to 18-20 percent through efficiency gains,” he said.
Ali clarified that investors have not sought dollar-denominated tariffs, as the government has made it clear that electricity tariffs will remain rupee-based, particularly given the growing migration of consumers away from the national grid.
He said the government intends to guarantee a minimum return while allowing investors to earn higher profits by reducing losses and improving operational performance.
The proposed performance framework will evaluate operators based on operational efficiency, recovery rates, load management, and transmission and distribution (T&D) losses.
According to Ali, investors have made it clear that the existing Disco model is unattractive and have called for structural reforms, including greater market liberalisation, enhanced competition in electricity buying and selling, and permission for self-generation without government guarantees.
Investors also urged the government to strengthen the National Electric Power Regulatory Authority (Nepra) by reducing discretionary powers and focusing on regulatory oversight and monitoring.
The privatised Discos will continue to operate under a uniform national tariff rather than company-specific tariffs, although the government is expected to provide certain contractual assurances to investors.
To improve financial viability, the government plans to settle or restructure legacy receivables and payables, carve out pension liabilities and selected assets, separate land holdings through long-term lease arrangements, and convert government share deposits into equity to create relatively debt-light balance sheets.
The proposed structure offers a Multi-Year Tariff (MYT) with a regulated return of approximately 13.2-13.4 percent, along with downside protection and additional upside for outperforming operational benchmarks. Investors have requested that MYTs remain locked in for 8-10 years to ensure long-term stability.
The model also targets 100 percent revenue recovery, compared with the industry’s current average of 96.6 percent, while reducing T&D losses to 8.6-10.6 percent, significantly below the national average of 18.1 percent.
Under the proposed transaction structure, investors may acquire 51 percent to 100 percent equity in each company with full management control. However, bidders will be permitted to acquire only one Batch-I Disco, either individually or through a consortium.
The government has scheduled the submission of Expressions of Interest (EoIs) for Gepco by August 7, 2026, and Iesco by September 7, 2026, with the bidding process expected to take place sequentially during October, November, and December 2026.
Muhammad Ali said the government aims to complete five power distribution transactions during FY2026-27, including the privatisation of the three Batch-I Discos and long-term concession agreements for Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (Sepco).
Story by Mushtaq Ghumman
