Power distribution companies’ IPO likely

ISLAMABAD: The federal government has decided to float a certain percentage of shares of power distribution companies on the country’s stock exchanges in initial public offerings (IPOs) within the next two to three months.

The ownership of these companies’ assets will also be transferred to their names and distribution companies will now prepare their balance sheets independently. The companies can use these assets as collateral to obtain revolving letters of credit from banks.

According to a source in the ministry of finance, these measures had earlier been proposed by the World Bank (WB) and the International Monetary Fund (IMF) as part of the reforms deemed necessary to solve the power crisis and the circular debt within the sector.

Earlier, the international bodies had recommended the dissolution of Pakistan Electric Power Company (Pepco). Pepco was duly disbanded a week ago. The second condition was to conduct an IPO of the shares of distribution companies, said the source, adding that the two conditions will be fulfilled with the IPOs of profitable distribution companies on certain stock exchanges. The money generated by the IPOs will be utilised to mitigate the circular debt problem, added the source. Apart from additional financing from privatisation, the companies’ performance is also expected to get better.

The source added that the WB, which is expected to finance the revamping of the power sector, had presented a 10-year, 20,000 megawatt (MW) vision for the power sector earlier this week.

The Central Power Purchasing Authority (CPPA) may be formed in place of Pepco, said the source, adding that Pepco was initially meant to last for only three years after which the CPPA was due to be formed. However, the Central Power Purchasing Agency was formed instead. The authority will be responsible for monitoring the independent distribution companies.

According to Asian Development Bank (ADB) and WB recommendations, the existing Central Power Purchasing Agency should be given the powers of an authority. He added that the CPPA is expected to be formed within the current fiscal year.

The federal government is now considering means of granting complete autonomy to power distribution companies. Eight distribution companies used to be managed by Pepco but these companies will now be independent. Five of these companies are currently making a profit.

The companies will also be allowed to obtain letters of credit from banks to get cash for the timely payment of dues towards oil companies to avoid another circular debt situation. The IMF will also be informed of these developments during the next round of talks, the source added.

Published in The Express Tribune, October 9^th, 2010.

https://i1.tribune.com.pk/story/57990/the-dissolution-of-pepco/