Private sector’s participation: Privatisation ministry, Power Div lock horns over Discos’ operations

ISLAMABAD: Ministry of Privatisation and Power Division have reportedly locked horns on proposed plan of private sector participation in operation of Discos through long-term concessions leading to their eventual privatisation, well informed sources in Privatisation Commission told Business Recorder.

Power Division, sources said, has prepared a new proposal for the Cabinet Committee on Energy (CCoE) with respect to Discos’ fate, after withdrawal of plan regarding handing over them to provinces.

The sources said, Privatisation Ministry has examined the summary and offered following comments in terms of Rule 8 of Rules of Business, 1973: (i) The privatisation process for Discos could not materialise inter alia, owing to the proposal for provincialisation of Discos and initiation of summary for the CCI by Power Division; (ii) offering Discos through concessional model (as proposed in the summary) does not fall within the mandate assigned to CCOE through Cabinet Division’s notification of August 23, 2023.

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Privatisation Ministry /Commission has sought attention to Section 25(e) of the Privatisation Commission Ordinance, 2000 which is as follows: “The Commission shall carry out privatisation, in accordance with the prescribed procedure, through any of the following modes- (a).. (b).. (e) lease, management or concession contracts; or (f).. “ .

The above Section, read with Section 5 of the Ordinance and Cabinet Division’s Notification of September 18, clearly mandates the Cabinet Committee on Privatisation (CCoP) to undertake/ approve any proposal related to offering Discos through concession contracts. Privatisation Division/Commission is of the considered opinion that private sector participation in Discos through long-term concession agreements shall be carried out with divestment.

“This Division does not support the idea of handing over public sector assets to a private party without having its own stake in it. This induces a perverse incentive for the concessionaire to utilise the asset as long as it stays interested to the extent of management fee and opting out of the agreement at its sweet will,” the sources quoted Privatisation Ministry saying.

It further stated this option would mean providing the private party with management control without any risk, which continues to be borne by the government.

Privatisation Ministry is of the considered view that the private party shall have a built-in-stake, albeit an insignificant one at the start, which can be increased over a period of time. This arrangement will ensure that the private party puts his stake on the line also thereby creating an incentive to improve the bottom line.

The Ministry has; however, supported the proposal of selecting one better performing and one worse-performing Disco; however, Power Division may like to indicate, in order of priority, the list of Discos on the spectrum of performance, in its summary, to take an informed decision about selection of one better performing and one poorly performing Disco initially. Privatisation Ministry has not supported delisting the Discos from privatisation program; however, the proposal of withdrawing the summary for provincialisation of Discos has been supported.

According to Privatisation Ministry, the experience of outsourcing airports by Aviation Division has revealed that it entails GoP guarantees for performance benchmarks and losses incurred during the contract period. Power Division summary is silent on the subject. The summary is also silent about the details of model to be followed, e.g., investment to be made by concessionaire, obligations and penalties for investment, financial incentives’ structuring, monitoring and evaluation, etc.

Privatisation Ministry maintains that private sector participation in Discos through long-term concession agreements with divestment shall be initiated under the Privatisation Commission Ordinance, 2000 and not under the Public Private Partnership Authority Act, 201 7.

Wrapping up its comments, Privatisation Division has proposed that the summary, after incorporating its comments, may be placed before the CCoP in terms of provisions of the Privatisation Commission Ordinance 2000 and Notification(s) of Cabinet Division.

Copyright Business Recorder, 2024