Private sector’s participation in privatisation of Discos: World Bank agrees to extend financial support under NLTA

ISLAMABAD: The World Bank (WB) has agreed to extend financial support to the government to facilitate private sector participation in the privatisation of power Distribution Companies (Discos), well informed sources in EAD told Business Recorder.

Replying to a letter written by Secretary Economic Affairs Division (EAD), World Bank’s Country Director has stated that the Bank is currently engaged with Power Division (PD) through the Electricity Distribution and Efficiency Improvement Project (EDEIP), which has significant focus (through Component 4) on supporting power sector reforms.

According to the Bank, introducing Public Sector Partnership (PSP) in the Discos does fall within this scope and overall project development objectives, and the technical assistance funding under this project can therefore be used for these purposes. In addition, the Bank team has already engaged a number of international and national experts to commence the work on the areas listed in the EAD’s letter (i.e.; the prerequisites for engaging private investors).

Private sector participation in Discos’ sell-off: Govt approaches World Bank for NLTA

The Country Director World Bank argued that one of the tasks critical for the successful completion of all the prerequisites, is finalisation of the Terms of Reference for the Transaction Advisor (TA), as well as, initiation of the hiring process. This task is to be undertaken by the Privatisation Commission (PC).

In the action plan, the TA needs to be onboard by September 2024 to meet the timeline for issuance of the first Request for Proposal (RFP) by May 2025. Therefore, the approval of the Terms of Reference (ToR), budget, and financing source for the TA, including hiring of the TA, is on the critical path.

As such, the presence of the PC in working jointly with PD and World Bank team to finalise the ToRs and the steps highlighted is essential, he said adding that the Bank is ready to discuss various financing instruments and resources to continue supporting downstream implementation of this initiative as Discos’ performance has been one of the key contributors to the growing circular debt in the power sector.

Earlier, Secretary EAD had approached the World Bank for Non-Lending Technical Assistance (NLTA) to facilitate private sector participation in the privatisation of power Distribution companies.

EAD conveyed to the Bank that the Ministry of Energy (Power Division) intends to avail WB’s support under Non Lending Technical Assistance for carrying out the following broad activities to facilitate private sector participation in the Discos: (i) draft guidelines for private sector participation in Discos and the competitive process for inviting the private investors/ operators; (ii) sector financial sustainability and sensitivity analysis including development of sector financial model, framework on uniform tariffs for Discos, management of Discos’ liabilities and subsidy management procedure; (iii) updating licensing eligibility criteria and rules for distribution and for supplier of last resort; (iv) developing a communication strategy and implementation action plan; (v) developing/ proposing HR strategy and action plan for implementation; and (vi) assessment of impact of market evolution on private sector participation in Discos.

EAD has asked World Bank to consider the request of Ministry of Energy (Power Division) and indicate its commitment to support the proposal under NLTA.

Recently, a high level meeting presided over by Prime Minister Shehbaz Sharif decided to privatise certain power distribution companies.

In Phase-I, IESCO, GEPCO, and FESCO will be fully privatised, followed by LESCO, MEPCO, and HAZECO in Phase-II. SEPCO, HESCO, and PESCO will be offered long-term concession agreements to the private sector, while TESCO and QESCO will remain under government control due to their unique conditions.

The Privatisation Commission has been directed to hire a transaction advisor and complete necessary formalities to finalise Phase-I transactions by January 2026. The Power Division will engage a technical advisor to review the regulatory and policy framework for the privatisation and outsourcing of Discos.

Copyright Business Recorder, 2024