The government aims to complete the first power sector transaction by July this year and wants to sell one of the few efficient companies, the Faisalabad Electric Supply Company. STOCK IMAGE
The government’s ambitious plan to privatise the electricity distribution network has received a first blow, as the deadlines set to hire financial advisers for three loss-making companies lapsed without attracting a single bid from prospective financial consultants.
After the poor response, the Privatisation Commission (PC) decided to take another chance and extended the deadlines for receiving technical and financial bids by two more weeks, said PC officials.
The deadline for hiring financial advisers for the Hyderabad Electricity Supply Company (Hesco), Sukkur Electric Power Company (Sepco) and Quetta Electricity Supply Company (Qesco) expired last week.
The PML-N government had wanted to fast track the privatisation process and gave advertisements to hire financial advisers for all power generation and distribution companies.
It aims to complete the first power sector transaction by July this year and wants to sell one of the few efficient companies, the Faisalabad Electric Supply Company. It will be followed by the strategic sale of Lahore and Islamabad distribution companies.
The PC has already hired financial advisers for these three profitable companies, as they have comparatively low line losses and better recoveries, making them the perfect business case for potential investors.
But employees’ unions and the leading opposition party, the Pakistan Peoples Party, are against the privatisation of the power distribution companies. Labour unions of all the power distribution companies held a protest rally in the capital last month, which was also addressed by Syed Khursheed Shah of the PPP.
Shah in his capacity as chairman of the Public Accounts Committee recently condoned illegal hiring of 7,000 PPP loyalists in three power distribution companies in 2008-09.
In terms of financial performance and efficiency, Sukkur, Quetta and Hyderabad companies are at the bottom of the country’s power distribution network, having higher line losses and less recovery of electricity bills.
For instance, in December last year, Qesco reported line losses of 22.5% while its recovery of bills was alarmingly low at only 21.7%.
In addition to the consultancy charges, the financial advisers are also eligible to receive at least 0.25% of the total cost as success fee.
According to experts, in case the government remains unable to hire the financial advisers for the loss-making entities even after the expiry of the second deadline, it should allow direct due diligence by prospective investors.
The other option is to list these companies on stock markets prior to their privatisation.
The government’s privatisation agenda remains successful only to the extent of divestment of shares in profitable entities, mainly in commercial banks and the oil producing firm – Pakistan Petroleum Limited. It has not yet completed any strategic sale in its 21-month tenure.
PSM setback
In yet another setback, the PC also did not receive any technical and financial bids from prospective financial advisers for the privatisation of Pakistan Steel Mills (PSM). The PSM’s fourth deadline extension ended on Monday.
Earlier, the only consortium that came forward to undertake the job was disqualified on technical grounds by the PC.
The PML-N government has so far injected Rs20 billion in the name of paying salaries to the employees and restructuring the PSM before privatisation.
A committee of bureaucrats has also been set up to look into the affairs of PSM and recommend whether the entity needs Rs7 billion more in cash on an immediate basis.
Published in The Express Tribune, March 3rd, 2015.
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