Plan B: Govt delays privatisation of power distribution firms

IMF report says these companies will be sold next year


Shahbaz Rana July 03, 2015
IMF report says these companies will be sold next year. STOCK IMAGE

ISLAMABAD:


With growing focus on easy capital market transactions to raise money for budget financing, the government has pushed back its privatisation plan for all power distribution companies by almost a year, raising doubts about plans to privatise the loss-making state enterprises.


Against the original plan to sell the Faisalabad Electricity Supply Company (Fesco) by August this year, the government has delayed the strategic sale till March next year, according to a latest report of the International Monetary Fund.

The privatisation of Lahore Electricity Supply Company (Lesco) and Islamabad Electricity Supply Company (IESCO) had been planned for October this year, but the timeline was first revised to December and now has been delayed for another six months to June next year, showed the report.

By the time the fresh deadline will approach, the government will have completed three years in office, making it more difficult to undertake politically unpopular decisions, according to analysts.

Privatisation Commission Chairman Mohammad Zubair cites non-resolution of regulatory and labour issues as the reasons behind the delay in privatisation of power distribution companies.

“Many enterprises that are going to be more difficult to privatise are still on the agenda and the timetable has been pushed back,” said Harald Finger, IMF Mission Chief to Islamabad, while addressing a teleconference on Thursday.

Finger appeared optimistic, saying from now onwards there will be progress and as an initial step, Pakistan will determine multi-year tariffs for three power distribution companies, which the IMF will monitor under the programme.

Privatisation is always complex all over the world, said Finger while responding to a question on the government’s preference to sell shares of profitable companies.

In the last two years, the government has raised Rs170 billion by off-loading shares in three highly profitable banks and in Pakistan Petroleum Limited. It undertook only one strategic sale of Heavy Electrical Complex (HEC), but it failed.

The government had also planned to complete the second strategic sale of National Power Construction Company before June this year. However, this has also been delayed for now.

The IMF has added a new condition to its $6.6-billion bailout programme. It has set the November 2015 deadline for determination and notification of multi-year tariffs for Fesco, Iesco, and Lesco. These determinations will reduce the tariff uncertainty for companies in the privatisation list, according to the report.

The IMF is pinning high hopes on the privatisation of the loss-making power distribution companies, as the government plans to shift the stock of power sector circular debt on to the book of these entities before their privatisation.

According to a new plan, which Pakistan submitted to the IMF in May this year, the stock of arrears, currently estimated at Rs335 billion, will be significantly reduced over the next three years. According to the IMF report, the government has assured that the stock of Power Sector Holding Company Limited (PHCL) debt will be transferred back to distribution companies, which will be privatised.

The IMF report reveals that total payables of the power sector have mounted up to Rs615 billion as of March this year including Rs280 billion current payables. The remaining Rs335 billion are parked in the PHCL and the government is charging 43 paisa per unit from the electricity consumers to service this debt.

However, the IMF is not confident about the government’s plan. The report states, “there are significant downside risks to the plan. In particular, delays in the privatisation programme and court challenges to the (electricity) surcharges would set back the programme and increase the flow of payables’.

There has also been little progress on the privatisation of Pakistan International Airlines (PIA) and Pakistan Steel Mills. Both entities were supposed to be privatised before June this year.

The government informed the IMF that due diligence process of PIA was expected to be completed by end-June 2015. It added that plans for private participation will be developed thereafter and a potential offering to a strategic investor is scheduled for end-December.

Published in The Express Tribune, July 4th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Our Publications

COMMENTS (1)

Kashif | 5 years ago | Reply There are no takers. Simple as that. Who will buy loss making, unionized and politicized power companies in Pakistan? You'd be throwing money down a bottomless pit!
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ