Discos—a dead weight around our necks?—I

Privatisation of Discos has been on the anvil since the 1994 World Bank spurned reform primarily relating Wapda’s Power Wing. It was envisaged that in the next 3-4 years, the newly set-up Discos would be duly corporatized and then put on the block for sale.

Such plans are available with the Privatization Commission since then. Because of various reasons, but primarily the opposition to out-right sale of national assets, privatization of the 10 distribution companies remained stalled.

KE’s example, as a private entity eating-up billions as subsidies, could also have been a show stopper. Further, the low appetite of local industrial conglomerates to acquire these state-owned companies could have assured opposition to any possible consummation of the proposed sales.

On the other hand, the main threat for the decision makers was that these predators would be basically interested in the real estate of DISCOs, and they would never serve the people.

The push-pull intensified with the grapevine that the interested business houses and individuals would never be interested, if they were denied the bonanza that the real estate could be.

As privatization of a particular SOE depends upon the interested buyer’s appetite and the strategy adopted for speed tracking possible sale, we see that interest for acquiring DISCOs wavered during the last decade only to rear its head again in 2022.

This time, however, the Aristotles of our time suggested another route for shedding the negatives of Discos on the federal government.

It was suggested that the DISCOs be shuffled-off to the provinces in the first instance – ostensibly, on the premise that since the local law enforcement and prosecution apparatus is within the domain of the provinces, they would be in the best possible position to tackle the twin menace of high incidence of illegal abstraction of power and the pervasive culture of non-payment of bills by huge swaths of electricity consumers.

The Platos in the Ministry of Energy (MOE) also propagated that all that the federal government had to do was to deduct (at source) the power price cost of each province (of the related DISCOs) and thus the issues of leakages etc. would simply vanish with one stroke.

The scheme envisaged CPPA (G) to submit monthly invoices for the Power Purchase Price (PPP) to the provinces and then all of the same would be fully paid unlike the present position where DISCOs were unable to clear their obligations to the CPPA (G) – with the difference adding-on to the ever-bloating Circular Debt (CD).

In other words, the present inefficiency and continued shenanigans at the DISCO’s level would be transferred from the federal to the provincial governments.

As the scheme was received very positively by the provincial bureaucracy, on account of high political economy of the DISCOs, the federal Aristotles and Platos were deeply disappointed on not being announced for civil awards on the last Independence Day – specially, when this time around the awards were highly civil servant centric.

On the other hand, the saner elements in Sindh & Baluchistan thought it proper to engage transaction advisors to plan for possible acceptance or otherwise. As a consequence, qualified acceptance of the DISCOs has been heard.

Reportedly, Sindh has shown tacit acceptance provided the unified tariff (presently being mainly under-written by the five so-called Punjab based efficient DISCOs and the federation) is retained for the next decade, whereafter the Sindh’s own Thar Coal-fueled power generation would assure affordable tariff for the province.

Similarly, KP is ready to accept PESCO (inclusive of the nearly still born HESCO – Hazara Electricity Company) along with the hydro-generation facility operating in the provincial precincts. Punjab’s bureaucracy seemingly needs no-one’s advice as it is sure of its prowess.

In other words, the latest plan to transfer the Discos to the provinces has nearly driven a wedge between the federation and its units. The fact that a similar situation existed in 2011-12 but was aborted was never considered.

Actually, the mindless transfers and postings that beset successive governments in Pakistan assure that the rolling stones do not gather any moss. The situation is further complicated by the serious lack of institutional memory and thus the same wheel gets re-invented at regular intervals.

Fortunately, the wait for reason to see the light seems to have ended. Thanks are due to the recently set-up SIFC (special investment facilitation council) and the caretaker MOE (minister of energy).

In his latest policy edict / interview to a private channel, the MOE has clarified that the earlier mindless scheme for transfer of DISCOs to the provinces has been scuttled and shelved.

He quoted the right reasons – good for him. Similarly, out-right sale / privatization too has been relegated and instead giving-of long-term (plus 20-30 years) management concessions (contracts) has been set in motion.

He further said that actual contracts would be given in a period of 6-8 months – in all probability, to be processed by the government formed after elections.

While welcoming the clarity with which the above proclamation was made, it is important to examine the proclaimed plan for giving long term management concessions or contracts for DISCOs and also suggest the right way. The possible threats to this plan too; need to be flagged.

The biggest possible threat could be the take-over of a DISCO by a predator who does not plan to improve the relevant utility – rather, has a serious conflict of interest in securing the concession.

The conflict could be an attempt to create a monopoly or to oust competition within the jurisdiction of the particular DISCO.

This leads us to suggest that the qualifications criteria for possible aspirants for the management concession have to be drafted in a manner that such an eventuality does not occur. This is all the more so because Pakistan is envisaging a single fuel usage regime in the Country and that too in the near future.

Explaining this regime, we see that the present multiple options competing with each other have to go to assure energy efficiency and soon electricity has to be accepted as the single energy source fueling and powering cooking and heating needs of residential and commercial customers, while also taking care of industrial and agriculture load requirements.

It is also planned that Electric Vehicles (EVs) would become the mode of transportation.

In view of the above, large scale industrial houses and companies controlling power generation in a big way are to be naturally discouraged to vie for the concessions in question. Even if it is thought that no exception should be made, then too, due consideration for any possible conflict of interest has to be taken.

As the main issue afflicting Disco operations at the moment is the lack of expertise and the consequent non-induction of new technologies and utility concepts, the main requirement for the bidder would be availability of a professional team comprising of the top most of utility practitioners. These teams should be able to cover all aspects of DISCO operations.

In other words, firm availability of the required team with impeccable antecedents has to be mandatory and would basically be the overriding factor in the award of the concessions.

The second and indeed very important qualification is the ability of the bidder to access and be able to arrange the needed financials for sustenance of DISCO operations and for upgrading the existing infrastructure in the shortest possible time.

This, on the face of it, could only be undertaken by a financial house of note and depth. Due to its over-riding importance, the financial house in question has to be the driver of any effort to bid for and then secure the long-term management concession of a particular DISCO.

Consequently, the financial house has to arrange for the needed professional team which carries the maximum weight during any evaluation.

On the basis of the above narration, the bidding documents or the RFPs have to be drafted by the MOE and the Privatization Commission in such a way that no conflict of interest occurs and that the right financial house with the required professional team gets selected. Any laxity in the process — specially, because of the huge political economy of Discos — would be a bane rather than a boon for the Country.

This could be assured by constituting a POE (panel of experts) available both to the MOE and the PC (Privatization Commission) for advice and direction. Indeed, the composition of the panel would be of utmost importance.

Besides, the POE would also be a part of the evaluation process – assuring only the fully qualified to be considered as responsive for the bidding.

As an appendage to the main qualifications, only the bidder that provides a long-term financial plan and a confirmation for availability of finance for sustenance and modernization of the DISCO in question would be given precedence for the award of the concession.

Actually, it needs to be understood that the initial requirement just to maintain a typical DISCO infrastructure can be upwards of Rs 20 billion alone and which needs to be utilised during the first year of any concession.

(To be continued tomorrow)

Copyright Business Recorder, 2023