PHOTO: FILE
ISLAMABAD: The Cabinet Committee on Privatisation on Thursday put off a decision on the privatisation structure of Faisalabad Electricity Supply Company (Fesco) as it could not agree on a proposal of selling 75% stake in one of the best performing power utilities.
The Privatisation Commission (PC) board had sought the CCOP’s nod to sell the stake in Fesco that served one-tenth of the country’s population. Finance and Privatisation Minister Ishaq Dar chaired the meeting.
The CCOP considered various options presented by the Privatisation Division for divestment of shareholding in Fesco and Thermal Power Station Muzaffargarh of Northern Power Generation Company, according to the Ministry of Finance.
“Financial advisers should provide the government with multiple options with a view to maximise gains from these transactions,” a press release said.
PC Chairman Mohammad Zubair said the CCOP sought more explanation on the financial and administrative aspects, adding the committee had powers to set aside the PC board’s decision and approve a new transaction structure.
He pointed out that Fesco’s transaction structure would set broader parameters for other power companies, therefore, the government wanted to ensure transparency and accountability in the process.
Fesco is one of the most efficient companies with line losses of slightly over 10% and recovery ratio of over 99%.
The financial advisers had given four options for Fesco’s privatisation and put its weight behind selling a minimum 76% shares along with transfer of management control.
However, the PC board reduced the share percentage to 75% in a bid to keep at least two directors on the board of the privatised company.
The advisers were of the view that the sale of 76% shares would maximise proceeds besides making the offer lucrative for the investor, who would have complete control over decision-making and would not need government’s approval.
The advisers also gave the option of selling a minimum 51% strategic stake along with management control while remaining shares should be offloaded in the capital market in the next three to four years.
However, they cautioned that in this case there were more disadvantages than benefits. In this option, the government may find it difficult to market the transaction and will keep a significant presence on the board, which will enable it to influence management activities and decisions.
The third possibility was selling 88% shares to a strategic investor. However, there was no clarity about the remaining 12% shares. The advisers also reviewed the option of privatisation after setting up a subsidiary, which it did not recommend. The government has not yet taken a decision on 12% shares that the previous government provided to the employees. There is also another hurdle pertaining to the ownership of Fesco properties.
Of the 120 properties owned by the company, titles of 98 have not been transferred to its name. The estimated value of the 98 properties was roughly Rs11 billion.
TPS Muzaffargarh
Zubair said the CCOP gave its approval for carving out the 1,350-megawatt power plant from Northern Power Generation Company Limited (NPGCL).
The government would establish a subsidiary to transfer assets and liabilities of the power station before its privatisation.
In order to improve the marketability, the financial advisers had proposed that all trade and other payables that form part of the circular debt should be kept in NPGCL and not transferred to TPS Muzaffargarh.
Published in The Express Tribune, September 18th, 2015.
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