Hesco, Sepco: Govts in ‘back channel’ talks on prospects of management control

ISLAMABAD: The Federal Government and Sindh Government are said to be engaged in "back channel" deliberations on prospects of management contract of two interior Sindh-based power Distribution Companies (Discos), well-informed sources told Business Recorder. Both the Sindh-based Discos - Hyderabad Electric Supply Company (Hesco) and Sukkur Electric Power Company (SEPCO) are the worst performing entities of the power sector.

The Federal Government, sources said, however, is hesitant to give both the Discos to Sindh Government fearing that the Provincial Government can back out from its commitment in five to six years after making losses.

The Federal Government has tailored a plan to offer management contracts of all the Discos to the private sector, through a competitive bidding process and incremental revenue sharing basis aimed at bringing down losses and improving recovery.

The Plan, which supposedly is backed by the World Bank, will allow the new managements to constitute their own Boards of Directors and powers to offer Voluntary Separation Scheme (VSS) to the employees. However, the private sector management will not be allowed to terminate the service of any employee.

The sources said, the management control plan has also been discussed at a meeting in Ministry of Privatisation. The Power Division has also handed over entire records of Discos to the Ministry of Privatisation to expedite the process of privatisation/ management contract.

A couple of existing big private sector players are also interested in taking management control of Discos such as Fesco, Iesco, Gepco and Lesco.

"We have asked Privatisation Commission to find out world's best management contract mechanism," the sources said, adding that all the provincial governments will also be asked to participate in the bidding process.

The then Finance Minister, Shaukat Tarin, had proposed to the PPP government to give management control to the private sector but his proposal found no traction with the then government.

The Pakistan Muslim League- Nawaz (PML-N) government supported privatisation/sale process of Discos with enthusiasm but shelved it after workers' unions launched countrywide demonstrations and shut down the offices of Discos. Later on it was decided to sell the shares of profitable Discos through bourses but that plan also failed after two proposed Discos posted losses instead of any profit.

The combined recovery of all Discos during FY 2019-20 remained at 88.77% as compared to 90.25% during FY 2018-19, showing an overall decrease of 1.48% in recoveries. The receivables from public and private consumers as well as the delayed payments of subsidies are causing increase in circular debt. Discos are required not only to improve recovery from public and private consumers but also to actively follow-up with the relevant Governments for timely recovery of subsidy amounts.

The eight Discos which posted negative growth in recovery are as follows ;(i) Pesco by 0.97 per cent, Hesco 1.28 per cent, Sepco, 6.74 per cent, Mepco, 6.41 per cent, Fesco 5.10 per cent, Lesco, 3.20 per cent. The three companies which showed growth in recovery were :(i) Tesco, 0.25 per cent, Iesco, 2.66 per cent and Qesco, 21.92 per cent.

The regulator argued that the receivables from public and private consumers as well as the delayed payments of subsidies are causing an increase in circular debt. The Task Force on Energy of PTI government headed by Nadeem Babar (now a SAPM on Petroleum) had proposed the following future strategy for Discos: (i) areas that have high losses continue to see high load- shedding by design; (ii) continuation of automated metering infrastructure programme in a phased manner; (iii) commitment of GoP to end unfunded subsidy; (iv) elimination of political intervention through independence of BoDs; (v) breakup of four larger Discos (Lesco, Mepco, Genco and Fesco) into better performing small units after detailed technical analysis; (vi) any Disco where AMI metering programme is deployed, an independent board is in place and where the size is manageable and loss ratios not too high, may be considered for privatisation; (vii) to continue implementation of ABC cable in high-loss Discos and to split the areas on the basis of losses and theft for administrative purpose; (viii) the first Discos will be ready for privatisation in three years after completion of reform process.

However, Dr, Abdul Hafeez Shaikh did not agree with the proposal to delay privatisation of Discos for three years and directed at least one or two Discos be made ready for privatisation. However, his intention and direction could not be implemented due to political considerations.

Now, the government appears to be serious to sort out with power sector issues including those associated with Discos, but it will be difficult for the incumbent government to privatise Discos in less than three years of its five-year tenure due to political considerations which maybe why it has decided to give management control to the private sector, said a senior government official on condition of anonymity.

Copyright Business Recorder, 2021