FESCO’s privatisation: due diligence finds host of issues

Properties not yet transferred to its name, 12% shares to become obstacles

ISLAMABAD:

After unearthing a hindrance in privatisating the national carrier, the Privatisation Commission (PC) is all set to face another fiasco.

The privatisation of Faisalabad Electricity Supply Company (Fesco) has hit a snag and may be delayed further, as 80% of the property has not been transferred under the company’s name. Additionally, confusion prevails over ownership of 12% of its shares, which the previous government had allotted to employees.

A consortium of financial advisor that carried out the due diligence of the company - one of the most efficient and profitable companies - has highlighted serious shortcomings that may affect its privatisation, said a top official of the PC.

Until the government addresses the issues of transfer of properties and ownership of 12% shares given to employees under the Benazir Employees Stock Option Scheme (BESOS), the PC cannot give a firm deadline to privatise the entity, said officials. Employees were also agitating against the privatisation pricess.

The Fesco issue

Fesco is at the risk of becoming the second privatisation transaction that could be delayed after the government’s plan to sell stakes in PIA hit a snag due to legal hindrances in transfer of shares.

The PC has called a meeting of its Board next week in which the transaction structure of Fesco will be approved. After the approval of the transaction structure, the government will invite bidders.

The FA has proposed to sell a minimum 76% shares in the company along with management control.



The PC had given August 2015 as the deadline to sell the entity to the International Monetary Fund.

Fesco has 3.3 million connections, serving one-tenth of the country’s population. It is one of the most efficient companies, having slightly over one-tenth line losses and a recovery ratio of over 99%.

Hurdles

The officials said one of the outstanding issues was that 98 out of 120 properties ‘owned’ by the power distribution company have not been transferred at its name. They said the estimated value of 98 properties was roughly Rs11 billion.

The PC is not ready to take risks, especially over transfer of property titles given the buyer of PTCL has withheld $800 million, out of $2.6 billion, even after nine years of the entity’s privatisation, said officials.

However, Fesco does not have funds to pay for the transfer of titles and the FA has recommended the government to give Rs2.5 billion as subsidy for picking up this cost.

The officials said the ownership of 12% shares under BESOS was another major concern. The 12% shares have been allotted to Fesco employees, but shares have not been issued in their names, said officials. They said this will be a major concern for the buyer.

The government will have to decide whether it wants to transfer the shares or scrap the BESOS scheme altogether, said PC officials.

Transaction structure

The FA has recommended selling a minimum of 76% shares along with management control, the officials said. This will maximise the privatisation proceeds besides making the entity lucrative for investors who will have complete control over decision-making.

Published in The Express Tribune, September 12^th,  2015.

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