Hesco, Gepco privatisation okayed

CCoP increases Privatisation Commission budget by Rs2.2b or 175%

ISLAMABAD:

The Cabinet Committee on Privatisation (CCoP) on Wednesday approved handing over the management control of the two loss-making power distribution companies to the private sector aimed at stemming their losses and improving efficiency.

Headed by Privatisation Minister Fawad Hasan Fawad, the CCoP also approved revising the budget of the Privatisation Commission, jacking it up by 175% or Rs2.2 billion. The Commission’s budget has increased phenomenally during the course of the fiscal year to make room for the majority of the $14.53 million or Rs4.3 billion payments to the financial advisors hired for the privatisation of Pakistan International Airlines and remodelling of the Roosevelt Hotel, New York.

The financial advisor of PIA will get a total of $6.9 million or Rs2 billion, and out of this, 95% or Rs1.9 billion will be paid during the current fiscal year, the CCOP was informed. Similarly, the financial advisor of the Roosevelt Hotel would get a record $7.65 million or Rs2.2 billion, and 60% of this payment will be made during the current fiscal year. These are probably the highest payments made to any financial advisor hired by the Privatisation Commission.

For the current fiscal year, the government had approved a Rs1.3 billion budget for the Privatisation Commission, which the CCoP has now revised to Rs3.4 billion – an increase of Rs2.2 billion or 175%. The additional room was created to make payments to PIA advisor Ernst & Young and Roosevelt Hotel Advisor is Jones Lang Lasalle (JLL) – a Chicago-based real estate management firm.

The privatisation ministry has used the Rs290 to a dollar exchange rate for the budget purposes for making the $14.53 million payments to these advisors. But the financial advisors will be paid in dollar terms.

The CCoP decided to give the Gujranwala Electric Power Company (GEPCO) and the Hyderabad Electric Supply Company (HESCO) on a 20 to 25 years lease contract, according to at least two cabinet ministers.

The decision was taken on a summary moved by the Ministry of Energy and it also has the backing of the Special Investment Facilitation Council (SIFC).

However, it was also decided that both these power distribution companies along with eight others will remain on the active Privatisation Programme. The CCoP also approved to end the earlier process of handing over these entities to the provinces.

The privatisation minister has in the past stated that the transfer of ownership of the power sector to the provinces cannot be described as privatisation.

The Ministry of Privatisation has not issued a press statement after the CCoP meeting.

Both the power distribution companies are running in losses. The annual State-Owned Enterprises (SOEs) report showed that the GEPCO caused a loss of Rs20.6 billion while the losses incurred by the HESCO amounted to Rs54.4 billion in the fiscal year 2022.

The CCoP did not pick the highest loss-making entity – Peshawar Electricity Supply Company – which caused Rs103 billion losses in 2022 – even more than the losses of PIA.

The CCoP did not accept the Ministry of Energy’s proposal to give a lead role to the Power Division in handling the outsourcing process. The CCoP also did not agree to setting up an inter-ministerial committee to give the two entities on lease.

The Power Division’s proposal to appoint the International Finance Corporation (IFC) – an arm of the World Bank – as the financial advisor was also not accepted by the CCoP at this stage.

The privatisation ministry had supported the proposal of selecting one better-performing and one worse-performing power distribution company. The privatisation ministry has not supported delisting the Discos from the privatisation programme; however, the proposal of withdrawing the summary for provincialisation of Discos has been supported.

There has been less focus on the privatisation of the power sector, which caused Rs376 billion losses out of the Rs730 billion combined losses by all the government-owned companies.

The CCoP did not approve another summary for the transfer of the 10% shares of Oil and Gas Development Company Limited (OGDCL) back to the Petroleum Division. These shares currently rest with the Privatisation Commission.

Earlier, the Privatisation Commission Board had referred the decision for the transfer of 10% shares of the OGDCL in the name of the Petroleum Division to the CCoP. The Privatisation Commission has been receiving dividends of the 10% shares, which it then remits to the finance division.

The CCoP decided that for the time being, these shares should stay with the Privatisation Commission. Eventually, these 10% shares along with the entire 85% government shareholding in the OGDCL would be transferred to the Sovereign Wealth Fund, according to the government officials.

Seven profitable companies have been placed in the Sovereign Wealth Fund, and their earnings will be used to make future investments in various ventures, they added.

Published in The Express Tribune, February 8^th, 2024.

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