ISLAMABAD: The Privatisation Commission (PC) is all set to submit a summary to the Federal Cabinet to scrap the option of provincialisation of power Distribution Companies (Discos) and reinstatement of the earlier decision of the Cabinet, well-informed sources told Business Recorder.
“The Privatisation sector participation on management of Discos including management contracts/outsourcing has been approved.
The PC is moving a summary for annulment of option of provincialisation of Discos to the cabinet,“ the sources added.
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The concession mode outsourcing will be discussed and firmed up proposal to be presented by the Ministers of Privatisation and Energy in Apex Committee of the SIFC, the sources added.
The World Bank has proposed ‘Pakistan Model’ to hand over Distribution Companies (Discos) to the private sector for 20 years with equity injection of Rs 728 billion without any cash impact layoffs and transfer of government assets.
The 18-month roadmap is supposed to be achieved using the examples of Turkey and some countries in Latin America as well as Pakistan’s indigenous experience with private participation.
According to the roadmap, transfer of government assets to private parties and the prospect of staff layoffs draw a strong negative reaction in Pakistan. Therefore, under the ‘Pakistan Model’ for private participation, the Disco assets will remain in the ownership of the government and there will be a moratorium on staff layoffs for a prescribed number of years after the private operator takes over.
The core of the ‘Pakistan Model’ is the tendering of concessions in the Discos. Each tender will allow the government to select a private partner who will purchase shares in a Disco against the right to run the Disco’s business for 20 years (to match the 20-year licences of Discos) without any transfer of ownership of the assets to the private partner.
Discos are highly regulated and the proposed model will bring additional clarity about the expected improvements in the Disco through the Multi-Year Tariff (MYT) regime. The MYT regime, which is already in vogue in Pakistan, will ensure that the operational targets, investment obligations, and tariffs of the Disco’s private operator are pre-defined to a great extent.
The government will continue to own the Disco assets operated by the private partner as well as any new assets created by the private partner.
Before the end of the 20-year concession, the government can tender the next concession. The shares owned by the concessionaire will be returned to the Disco at the end of the ongoing concession.
The objective of a concession is that a private party acquires the rights and obligations related to the technical and financial operation of the company for a pre-defined period. This includes the investment obligations and compliance with all the conditions of the license of the Disco, all compensated through the tariff.
To achieve this, the concessionaire must have control of the Board of Directors of the Disco. This can be granted through appropriate corporate measures such as selling the majority of the shares of the Disco or granting shares with special rights to give control of the company to the private partner.
Eight of Pakistan’s ten Discos are proposed to be offered to qualified private partners under the concession model. The other two, Qesco and Tesco, are considered to have significant risks to the possibility of securing revenues through the tariff.
Therefore, the concession model is not considered suitable for them at this stage and a well-crafted 5-year performance-based management contract is proposed for these two Discos after which they can be tendered for concessions.
The management contract is considered more suitable for Qesco and Tesco since it is tendered for a fee paid to the private partner in exchange for improving specific performance areas. The management contractor is not mandated to make (major) investments and is not affected by tariff.
In terms of sequencing, the World Bank has recommended that each Disco be offered individually allowing for a single private party to be awarded more than one Disco with pre-established conditions about how many Discos may be awarded to a single party.
Offering all Discos simultaneously would become a major challenge, therefore, World Bank has recommended that the process be divided into batches of Discos.
This approach of batches can also be implemented within a short period of time, i.e., a year or so. In the interest of efficiency and consistency across individual transactions, the Privatisation Commission must consider appointing a single Transaction Advisor for the entire program. The batches need to be designed by the Transaction Advisor.
The ongoing implementation of the Competitive Trading Bilateral Contracts Market (CTBCM) in Pakistan’s power sector is fully consistent with the participation of power sector entities whether they are in public hands or private hands. No adaptation is required in the proposed model for private participation.
The roadmap suggests that achieving success in this program requires the creation of a win-win solution for Disco staff, the private operator as well as the Government.
To address staff perceptions of job insecurity and lack of trust regarding prospective private operators, it has been recommended that the Government move fast to announce a moratorium on layoffs of Disco staff for a prescribed number of years after the private partner takes over the concession. The government should take a clear view of the costs associated with this decision and commit to a way to cover them. Options based on international experience may be considered.
Communication by the Government is the key first step, far ahead of any transaction work. It is critical to provide a transparent playing field and a predictable process. Coordinated and timely action by the relevant Government entities can bring success to Pakistan.
Copyright Business Recorder, 2023
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