Transfer DISCOs in name of president: World Bank

Bank recommends nine prior actions before privatisation of power distribution firms

ISLAMABAD:

The World Bank has proposed the transfer of ownership of 10 power distribution companies (DISCOs) in the name of the president of Pakistan before their auction, as the government's sell-off strategy suggests that the sector will remain a burden on the exchequer even after its privatisation.

The World Bank has recommended at least nine prior actions, one of which is that the shares of DISCOs should be transferred in the name of the president of Pakistan, said an additional secretary of the Power Division on Monday.

He was briefing the Senate Standing Committee on Privatisation, headed by PML-N Senator Tallal Badar Chaudhry. In a briefing on the privatisation of DISCOs, it emerged that the sector would keep bleeding due to politically induced policies. Tallal Chaudhry remarked that the privatisation of DISCOs was far more complex than Pakistan International Airlines (PIA).

Under the Non-Lending Technical Assistance (NLTA), the Power Division had engaged the World Bank to assist in privatisation against the agreed terms of reference. The additional secretary said that the majority of shares of DISCOs were owned by the federal government.

Without first addressing the legacy issues, these entities could not be privatised, said Abdul Aleem Khan, Federal Minister for Privatisation.

The additional secretary briefed that the World Bank set a minimum of nine conditions for a successful privatisation but so far only two had been fully met. He said that the World Bank had given the report on a piecemeal basis and "we are still waiting for the final version".

Without first having the complete report, the privatisation process for DISCOs could not effectively begin, said Tallal Chaudhry. In order to make privatisation a success, the World Bank has recommended notifying the licence eligibility criteria rules and modifying tariff rules to address uniform tariffs.

As per the government's policy, even after privatisation, there will be uniform electricity prices across the country, said the additional secretary.

Under the uniform tariff policy, the consumers of a company having the highest line losses, for instance Hyderabad, will pay the tariff applicable to the relatively most efficient company, for instance Faisalabad or Islamabad. This means the consumers of Punjab will keep subsidising the consumers of Balochistan and Sindh.

The World Bank has recommended that the government should clarify subsidies for Nepra's consideration and in notifying tariffs. It will also have to notify guidelines on how DISCOs can request and recover subsidies.

The additional secretary said that the subsidies would continue for the consumers of privatised companies, which indicates that there would be a constant burden on the budget. According to another prior action, the government will have to clean up the DISCOs' balance sheet by erasing doubtful entries.

Another condition is that the government will complete the issuance of shares in DISCOs and develop the future process for the issuance of shares. A new electricity policy is also needed before privatisation, wherein roles and responsibilities will be specifically and clearly defined to facilitate DISCOs in reducing their technical and commercial losses.

There are various off-balance sheet liabilities of DISCOs, which need to be recognised as per applicable financial and corporate reporting requirements, according to the World Bank.

The implementation of these prior actions would require approval of the federal government, Nepra and the inter-ministerial clearance, said the additional secretary. He added that the government was hopeful that the remaining seven conditions would be met by the end of January next year.

Financial advisers for the first three DISCOs would be hired by the end of November, said Usman Bajwa, Secretary Privatisation Commission. Two parties have been pre-qualified and their technical and financial bids are being evaluated. The advisers would recommend whether all the three profitable companies should be privatised in one go or in a gradual manner, said the privatisation secretary.

In August this year, the cabinet approved the privatisation of three DISCOs in the first phase. The outright sale of Islamabad Electric Supply Company, Faisalabad Electric Supply Company and Gujranwala Electric Power Company has been cleared by the cabinet.

In the second phase, three loss-making entities – Lahore Electric Supply Company, Multan Electric Power Company and Hazara Electric Supply Company – have been approved for outright privatisation. The highest loss-making entities – Hyderabad Electric Supply Company, Sukkur Electric Power Company and Peshawar Electric Supply Company – have been approved for a concession model through long-term agreements in the second phase.

The government should attempt to sell the bouquet of one profitable and one loss-making company, said Senator Nadeem Ahmad Bhutto.