In Islamabad, Pakistan is set to emulate the successful Turkish model by outsourcing the management of its power distribution companies (DISCOs) in a bid to curtail losses, enhance efficiency, and attract investment.
Following an agreement with the International Monetary Fund (IMF), Pakistan aims to engage a transaction adviser for long-term concessions by April 2024. The World Bank has offered grant-based technical assistance and risk guarantee instruments, bolstering confidence for potential private concession holders and lenders. Additionally, the International Finance Corporation has shown interest in providing transaction advisory services.
Recent discussions in the Cabinet Committee on Privatisation (CCOP) highlighted the benefits witnessed in countries like Turkey, Argentina, Brazil, and Uganda through long-term concession models. Turkey, for instance, saw a substantial increase in private sector investment, improved service quality, and a one-third reduction in losses over a decade across its 20 DISCOs.
Pakistan’s policymakers stressed the importance of gradually reducing liabilities without significant tariff hikes, akin to Turkey’s approach, to ensure a smoother transition towards privatisation. Handing over DISCOs to provincial governments was deemed unlikely to yield the desired strategic shift, with concerns raised over potential delays and conditions set forth by provincial authorities.
Privatisation emerged as the preferred solution, with concerns over legal and political pressures regarding asset valuation and ownership issues. Legacy disputes between DISCOs and WAPDA added further complexities to the process.
The Power Division proposed initiating the concession model with two DISCOs, Gujranwala Electric Power Company (GEPCO) and Hyderabad Electric Supply Company (HESCO), to address operational challenges. Past efforts, including the formation of committees for provincial transfer and private sector participation, underscored the need for a decisive approach.
A consensus emerged during meetings of the Special Investment Facilitation Council (SIFC) and the CCOP to pursue private sector involvement in DISCOs management, emphasizing the role of the Privatisation Commission in steering the process.
Extensive consultations with relevant stakeholders and international financial institutions have been conducted to tailor the model to Pakistan’s needs, emphasizing modern governance practices, technology integration, and investment attraction.
As discussions progress, Pakistan is poised to embark on a transformative journey in its energy sector, leveraging international best practices to drive efficiency, sustainability, and investment.
