Delay in privatisation irks CCOP
TRIBUNE CREATIVE
A cabinet body on Thursday expressed its anger over lack of progress on the privatisation programme and directed the Ministry of Privatisation to submit timelines for outsourcing the management of power distribution companies.
The Cabinet Committee on Privatisation (CCOP) was furious over the privatisation ministry’s lack of progress on its two-month-old instructions that called for beginning the process of outsourcing the management of power companies to the private sector, according to finance ministry officials.
The Privatisation Division presented various proposals for the award of management contracts for a smooth running of distribution companies in compliance with the earlier directive of the CCOP meeting held on January 4, 2021.
The CCOP underlined the need for speeding up the completion of prior actions pertaining to the award of management contracts for distribution companies and called for presenting a roadmap with firm proposals within a week after seeking requisite approval from the Privatisation Commission (PC) board, according to a finance ministry’s statement.
The CCOP allowed the hiring of a transaction adviser as permissible under the rules.
The CCOP had expected that the privatisation ministry would bring a clear roadmap for outsourcing the management of power companies, which was also a condition of the International Monetary Fund (IMF) programme.
The CCOP was informed that the Ministry of Energy was not cooperating with the privatisation ministry.
“Time is of essence in undertaking a well-structured privatisation activity to bring competitive efficiency, improve service delivery and enhance customer satisfaction,” remarked Finance Minister Abdul Hafeez Shaikh.
The finance minister also urged meeting participants to observe the timelines and carry forward the entire process in an expeditious manner.
The management contracts will improve service delivery and serve the larger interest of electricity consumers in Pakistan.
According to the government’s new plan for improving efficiency of state-owned enterprises (SOEs), the privatisation process for power distribution companies will be completed in four years. This is because of the requirement to first restructure the enterprises and then start their privatisation.
The government wants to first outsource the management of Islamabad Electricity Supply Company (Iesco).
Among the loss-making SOEs proposed for privatisation, the major loss-making entities are eight power distribution companies and one power generation company (Jamshoro Power Company).
The distribution companies include Hyderabad Electric Supply Company, Lahore Electric Supply Company, Peshawar Electric Supply Company, Sukkur Electric Power Company, Multan Electric Power Company, Faisalabad Electric Supply Company, Quetta Electric Supply Company and Iesco.
No loss-making enterprise could be privatised in the last over two and a half years.
The Pakistan Tehreek-e-Insaf (PTI) government has already dropped Pakistan International Airlines (PIA) from the privatisation list. It first removed Pakistan Steel Mills (PSM) from its active list of privatisation but included it again in June 2019.
There were expectations that the privatisation programme for power distribution and generation companies may be revived after reaching a staff-level agreement with the IMF for a $6 billion loan package.
The Privatisation Division presented a summary on the approval of a reserve price for the privatisation of Services International Hotel, Lahore - a real estate transaction.
“The committee approved the reserve price for the sale of Services International Hotel, as recommended by the Privatisation Commission,” said the finance ministry.
The commission had recommended a reference price of Rs2.25 billion.
The government has determined the value of the hotel on the basis of market value as it found the Residual Land Value approach inconsistent due to different approaches by the valuators. The transaction committee had recommended a reserve price of Rs2.2 billion for the sale of the hotel.
Six potential investors have pre-qualified for the bidding stage and due diligence has already been completed. The government wants to sell the hotel this month as it struggles to show a meaningful privatisation transaction during its over two-and-a-half-year tenure.
Earlier, the government had sold 23 properties at a total cost of Rs1.11 billion. However, only 10 buyers submitted the bid money of Rs920.8 million in respect of 10 auctioned properties. Bidders for 13 properties failed to deposit sale proceeds and these properties would be auctioned again.
The government has undertaken about 16 privatisation transactions, but all of them are falling behind schedule.
Privatisation of two liquefied natural gas (LNG)-fired power plants is the biggest transaction, which are expected to fetch $1-1.5 billion. However, the CCOP was informed that due diligence by investors has been halted.
The issue of financing the debt component of a privatisation deal has not yet been sorted out. Tax-related matters of the LNG power plants have also not been fully addressed, according to the privatisation ministry officials.
The CCOP was also informed about the privatisation status of PSM. The government has already approved its transaction structure, which envisages the sale of the mill through a subsidiary.
The government is still in the process of finalising the scheme of arrangement for filing with the Securities and Exchange Commission of Pakistan (SECP). Different issues such as the status of a jetty at Port Qasim, land lease agreement between PSM and the new subsidiary and utility connections and settlement of over Rs300 billion in liabilities remain pending.
Published in The Express Tribune, March 19th, 2021.
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