The government has decided to constitute an inter-ministerial committee to formulate privatisation mechanism of power sector distribution and generation companies, well-informed sources told Business Recorder.
The sources said the government is committed to power sector reforms that will make the sector stable and sustainable. The government is implementing a power sector reform plan covering various areas of the sector including: (i) re-aligning generation costs; (ii) privatisation of distribution system; (iii) governance reforms of SOEs; (iv) optimizing operations to lower costs and; (v) regulatory reform for open market.
The sources said, in line with the policy objective of the Government of Pakistan to liberalize the power sector privatisation program was initiated by the government. Council of Common Interests (CCI) and CCoE gave approval for initiating privatisation of public sector power companies including Discos and Gencos. In pursuance of these objectives, the Privatisation Commission appointed financial advisory experts/consortiums to undertake due diligence of these public sector enterprises, but the process met opposition and agitation from the labour unions.
"One method of privatisation was adopted for all companies. The initiative did not address the key steps that must be completed before any privatisation," the sources added.
"Privatisation is thought to be a solution to the political and financial challenges that are causing the current power sector issues. Just changing the ownership without addressing ownership without addressing the core regulatory issues will not resolve the core problems. Multiple models of privatisation that are available in the world e.g. the Turkish model were never studied," the sources maintained.
To advance privatisation and prepare distribution companies for an appropriate structure of privatisation a roadmap is required to be developed and implemented with timelines. Work needs to be done with Nepra, in particular, and also with Power Division, the Ministry of Finance, the Ministry of Privatisation, consumer groups and affected labour unions.
The amended Nepra Act envisages separate retail and wire business. Such provisions in the law can facilitate privatisation of power sector SOEs. While presenting power sector reforms package prepared by him, Nadeem Babar, SAPM on Petroleum and Chairman Task Force on Energy, proposed to initiate privatisation of two Discos, Iesco and Pesco but he also stated that before such a process is initiated, the following questions need to be answered. This was not an exhaustive list but highlighted some core issues: (i) will the buyer be given monopoly rights; (ii) will uniform tariff be maintained in the country; (iii) will the government keep giving subsidy to the poor; (iv) what mode of consumer tariff will Nepra adopt (multi-year or annual, performance or cost plus); (v) what support will buyer have from Law Enforcement and; (vi) buyer rights regarding workforce termination.
The Power Division is of the view that privatisation has been attempted in the past but did not succeed due to multiple reasons including labour unions. The privatisation process was stopped but no research was done on various models of privatisation that can be adopted and also the complications that arise from issues of implementation of GoP polices and a uniform treatment of consumers.
The Power Division has proposed that models like Turkish model be studied, which is based on sale of assets and a 30-year contract with a private entrepreneur against minimum performance standards set by the government. All Discos are still regulated by the body. As an alternative the outsourcing of revenue collection can also be considered in Discos. The Power Division does not support the option of provincialisation of Qesco, as that would entail major constitutional and practical difficulties.
The Power Division maintains that the privatisation of KESC (Now KE) also needs to be examined so that any success or failure of that transaction may be taken into account.
"Different models can be used for different Discos, depending on the specific circumstances. Any decision to privatise without examining these options may again meet the same fate," the sources added.
The Power Division has proposed a committee under the chairmanship of Minister for Power and comprising Minister for Privatisation, SAPM on Petroleum, Secretary Power, Secretary Finance, Secretary Law and Secretary Privatisation to propose a suitable structure for privatisation for the power sector SOEs (including various models of privatisation in the world). The committee will complete its assignment in 90 days. The sources maintained that large companies like Pesco, Mepco and Lesco will be divided into two each aimed at making governance and eventual privatisation much easier.
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