FESCO seeks hefty tariff rise before privatisation

If granted, it will give profit guarantee and encourage investors

ISLAMABAD:

The Faisalabad Electric Supply Company (Fesco) has sought a tariff increase of up to Rs4.91 per unit from the regulator, a request, if accepted, will give guarantee profit to investors and encourage them to participate in privatisation of the public sector utility.

The National Electric Power Regulatory Authority (Nepra) reserved its judgment while hearing a petition on tariff revisions for the next five years here on Monday.

During the public hearing, it was disclosed that Fesco paid an additional Rs13 billion to the Central Power Purchasing Agency (CPPA) for electricity purchase.

Fesco sought a tariff increase of Rs1 to Rs4.91 per unit for the first year and Rs0.58 per unit for the second year. For the next three years, it demanded an increase of only Rs0.06 to Rs0.17 per unit.

According to officials, the government desires to push up tariff for the next five years in an attempt to encourage investors to participate in bidding for the sale of Fesco. The five-year tariff will provide a guaranteed return to the investors.

However, the privatisation of Fesco has hit a stumbling block and may be further delayed as 80% of the utility’s property has not been transferred in its name. Additionally, confusion persists over ownership of 12% shares, which the previous government allotted to the employees.

During the hearing, the Nepra chairman aired concern over the extra payment of Rs13 billion to the CPPA and asked how it would be recovered after privatisation.

He noted that the Fesco management was collecting money from consumers on account of maintenance and operation cost, but the company had an obsolete system. He suggested that the government should put an end to payment of subsidy after the company’s privatisation.

A consortium of financial advisers, which carried out due diligence of the company - one of the most efficient and profitable power utilities, has highlighted serious shortcomings that may affect its sell-off.

Until the government addresses the issues of transfer of properties and ownership of 12% shares given to the employees under the Benazir Employees Stock Option Scheme, the Privatisation Commission cannot give a firm deadline for selling the company. Employees were also opposing and agitating against the privatisation.

The financial advisers have recommended selling a minimum 76% of shares in Fesco along with transfer of management control to the buyer. The Privatisation Commission has given the deadline of August 2015 for the sell-off to the International Monetary Fund.

Fesco caters to 3.3 million electricity connections, serving one-tenth of the country’s population. It is one of the most efficient companies, having slightly over 10% line losses and a bill recovery rate of over 99%.

Published in The Express Tribune, September 22^nd, 2015.

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