ISLAMABAD: The Privatisation Commission (PC) has reportedly framed Terms of Reference (ToRs) for the Transaction Advisor (TA) designed to prepare Power Distribution Companies (Discos) for handing over to provinces, well informed sources in Privatisation Commission told Business Recorder.
Prime Minister Shehbaz Sharif directed the concerned Ministries/ Division to prepare a mechanism to handover Discos to the respective provinces which have already shown willingness to accept the Discos with some pre-conditions.
Discos in KP, Sindh and Balochistan are showing massive losses, which are being paid for by the consumers.
Provincialisation of Discos: PC nominates senior member to facilitate Power Division
Sharing the details, sources said, forgoing policy and regulatory framework in view, the high-level Committee established by the Prime Minister in its meetings held on April 17, 2023 and May 25, 2023 deliberated on the need to have the Transaction Advisor (TA) appointed to assist in the transfer of ownership of Discos to provinces. In the meeting held on May 25, 2023, the Committee inter alia decided: (i) Ministry of Energy (Power Division) will move a summary for CCI to obtain approval in principal for allowing Provincialisation of Discos; and (ii) Ministry of Privatisation in consultation with Ministry of Energy (Power Division) will finalize the ToRs for the Transactional/ Financial Advisor. Ministry of Energy (Power Division) will circulate the said ToRs to all stakeholders.
The prime purpose for appointing the TA is to carry out due diligence of the Discos against which a consent is received from the provinces for acquisition. The TA will also draft the modus operandi for transfer of ownership of Discos to the provinces, keeping in view the constitutional requirements along with policy and regulatory framework.
The scope of work for the TA will be broadly divided into four phases, i.e. Phase-I: due diligence, phase-II, proposing transaction structure; phase-III, proposing implementation plan for Provincialisation, and phase-IV, phase-wise implementation of closure reports.
The ToRs are an indicative set of information to identify the key roles and responsibilities of the Transaction Advisor who is expected to carry out all efforts, exercise skills and prudence to complete the transaction as per industry norms and international best practices suitable and required for such transactions. It should be noted that the summary of advisory services scope of work includes but is not limited to:
Phase-I: Due Diligence.
(i) Policy and Regulatory review: The Transaction Advisor will conduct review of the provisions of the constitution with regards to the transfer of Discos to the provinces. The TA will also conduct evaluation of power sector laws, policy and regulatory framework in the context of their implications on the transaction structure. This will also include examining leases, contracts, permits, and licences and guarantees, if any.
(ii) Review of power market structure implications on Discos: The TA is expected to review the approved wholesale competitive market design for Pakistan’s power sector (the Competitive Trading Bilateral Contracts Market CTBCM) and its implementation plan available on the NEPRA website, to be fully familiar with it and take it into consideration in recommendations and tender/ contract documents.
The TA will also evaluate the changes made in the NEPRA Act with regards to the opening of electricity market, changes in the licensing regime of Discos and implications on the commercial and financial aspects of the Discos (that are included for due diligence).
The Transaction Advisor is expected to identify any issue in the current power policy, legislative and regulatory framework that affects the Discos that could potentially implicate their provincialisation, and recommend, in consultation with NEPRA, and other relevant stakeholders, actions to mitigate the impact without requiring changes in legal and regulatory framework.
The Transaction Advisor may also advise and make plausible recommendations on the required changes in laws and/ or policy and regulatory framework to enable and facilitate the acquisition of Discos by provinces and post-acquisition responsibilities.
(iii) Technical review: The TA will conduct review of technical aspects of the Discos including its distribution network, assets conditions, further investment needs, and repair and maintenance arrangement. This evaluation will also include the review report on technical health of power distribution system, identification of high loss-making feeders, technical staff and capacity, type of monitoring systems in place and their efficacy.
Any impaired assets or assets not in the name of Disco or pledged will also be identified. The TA will also review the transmission infrastructure and constraints. The information on capacity, length and transformers (including overload) will also be reviewed.
(iv) Financial review: A comprehensive financial analysis will also be carried out as an integral part of the due diligence process. This will include evaluating the business’s financial information and financial statements, including income statements, balance sheets, and cash flow statements. The system of accounting and internal controls, Disco’s accounting practices will also be closely reviewed.
The impact on inflows and outflows will also be carried out as a result of CTBCM and provincialisation of Discos. The TA will also carry out the aging of receivables from Government and Private Sector. TA will review the changes of recovery position in recent years.
(v) Operational Analysis: The operational analysis section of a due diligence checklist will focus on examining the company’s procedures and operations. It incorporates evaluating the company’s supply chain, commercial affairs and inventory administration.
It is necessary to guarantee that the company has sufficient capabilities and resources to fulfil its obligations as per its licence and that its operational procedures are efficient and useful. TA will also review the number of active and disconnected consumers, mobile meter reading accuracy status, pending connections, removal of safety hazard points, and transformers repaired (own workshops and outsourced).
(vi) Human resource issues: As a part of the envisaged process of provincialisation, the Transaction Advisor will assist the GoP in developing and implementing a communication strategy for Discos’ staff and in developing and implementing a clear and workable plan for employees including retrenchment plans for redundancies (if any), as well as, compensation packages or other arrangements to solve the problems that may arise so as to ensure that the rights of the existing employees will not be compromised in this process.
Phase-II: Proposing transaction structure: Based on the sector-level and entity-level review, the multi-year tariff determinations, regulatory parameters and necessary inputs received from stakeholders, the Transaction Advisor will prepare a comprehensive Transaction Model for a Disco (keeping in mind the separation of the distribution and supply businesses) that can be adapted to produce projections for each Disco, keeping in view each Disco’s potential growth, approved tariffs and future earnings, accumulated losses, subsidies, power purchase requirements and other business considerations, etc.
Phase-III: proposing implementation plan for provincialisation- based on the due diligence report and the transaction structure, necessary changes will be specified for implementation phase of the transaction. The TA will recommend a plan for provincialisation of each Disco and its phase wise handing over to the province concerned.
This implementation of the transaction structure for the provincialisation of each Disco will be in close coordination with the regulator(s). In this regard, (i) TA will provide justification and financial modes used, as well as, a detailed explanation in arriving at specific recommendations and its phased wise transfer to the province; (ii) TA will assist Power Division and province in identifying the step involved in complying to the transaction structure and regulator’s requirements; (iii) the steps involved in the implementation of each phase of transferring the Discos operation to the province; and (iv) carry out such tasks as deemed necessary and directed by the GoP.
Phase-IV: the TA will be a single point of contact for the Power Division, provinces and NEPRA. The Transaction Advisor will engage and mobilize a multidisciplinary team of experts (consortium), as necessary, with skills and experience in all aspects, including but not limited to financial matters, power system operations and management, labour and human resources planning management, legal review, communication and engagement of all stakeholders for transaction’s swift and smooth closure.
Copyright Business Recorder, 2023
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