The government plans to privatise all public sector power generation companies (GENCOs) and distribution companies (DISCOs) within next five years. Minister for Privatisation Ghous Bux Khan Mahar said this while speaking with the Argentinean Ambassador Rodolfo J Martin Saravia. He stressed that efforts were being made for the transfer of management of GENCOs and DISCOs to the private sector within next five years through a competitive, transparent, open and fair privatisation process.
During the meeting, the Argentinean Ambassador informed the minister that Argentinean investors were keen to participate in the privatisation effort. The Minister urged Argentinean business groups to visit Pakistan to better understand the investment opportunities. He also briefed the envoy on the upcoming transaction of exchangeable bonds of the Oil and Gas Development Company Limited (OGDCL). Mahar has recently invited French business groups to participate in the upcoming monetising of 10 percent of Government of Pakistan’s shareholding in OGDCL through exchangeable bonds.
With regards to plans for OGDC, the Privatisation Commission is all set to hold road shows for the exchangeable bonds of the Oil and Gas Development Company Limited (OGDCL) at Abu Dhabi, Singapore, Zurich, London and Hong Kong from June 19 to 21. The government has already appointed a Financial Advisory Consortium comprising of Citibank, Credit Suisse, JP Morgan and BMA Capital, assigning them the task for the issuance of OGDCL’s exchangeable bonds of at least $500 million. The Finance Division and the Privatisation Commission would jointly administer the transaction.
Improvement in power sector governance is urgently required as the demand is expected to increase to 25,000 MW by 2014-15, which requires an investment of over $35 billion in the next five years. Currently the Independent Power Producers (IPPs) supply about 7,000 MW of power while GENCOs and WAPDA have the capacity to supply 8,000 MW.
Boosting the performance of the dilapidated power sector is expected to require an integrated energy policy which is planned to be implemented from the next fiscal year, along with comprehensive business plans for all DISCOs and GENCOs. The transition process is expected to take between two and three years, after which the power sector companies would be financially solvent.
The companies are in loss due to the power tariff differential, due to the rising price of oil in the international market. Experts are of the opinion that due diligence on the balance sheet by incorporating expensive real estate of the companies so as to ensure they are made suitable offerings for investment.
The government initially plans to privatise two profitable DISCOs, Islamabad Electric Supply Company (IESCO) and Faisalabad Electric Supply Company (FESCO). But the privatisation of the entities requires a complete overhaul of their management practices and operations. The government privatised the Karachi Electric Supply Company (KESC) with 75 percent shares in November 2005, but the company remains in dire straits due to the supply constraints to meet the requirements of the country’s industrial hub, Karachi.
Implementation of reforms are stressed as the public sector organisations remain plagued with managerial and administrative problems, extreme lack of funding due to tariffs being set at below cost recovery, nonpayment of receivables, and delayed payment of subsidy by the government. To make entities eligible for privatization, the government has reconstituted their board of directors from members of the private sector. The hiring of professional management for a revival loss making entities is deemed to be a vital second step before bringing the private sector entities under the hammer.
The government plans to start hiring professional management for these companies beginning from the next fiscal year as well as implementing reforms which have been devised after the completion of a loss making exercise carried out with the assistance of USAID.