CCOP okays handing over Discos to private sector

ISLAMABAD: The Cabinet Committee on Privatization (CCOP) has accorded approval to hand over the right to operate the business of electric power distribution companies (Discos) under a 20-25-year long-term concession agreement to the private sector.

The private sector companies would be entitled to have control of Discos after being selected through auction or through bids, a senior official who was a part of the meeting told The News on Wednesday. “As a pilot project, the CCOP has decided to hand over to the private sector two Discos, Hesco and Gepco, one loss-making and one profit-making entity. The private sector would have full control of Discos’ affairs with the right to change the board of directors.”

The Privatization Commission, the official said, would lead the process of handing over Discos to the private sector under a long-term concession agreement, though the Power Division would also assist. To this effect, transaction advisors (TAs) would be appointed and the World Bank would facilitate the whole process. “The private companies submitting the highest bids with investment plans for 4-5 years apart from their customers service delivery standards and plans to reduce losses will be selected for agreements. In the CCOP meeting, it was decided that provinces would have no role in Discos’ affairs.”

After 4-5 years of investment, the private sector would start getting dividends on its investment and the reduction of losses every year would yield rewards to the private company in the shape of monetary gains. The impact of reduced losses will be treated as a profit of the private sector and this would be shared with the government too. Apart from this, the return on assets to be built as a result of investment from the private sector will also be given to private management on a weighted average cost basis. This model has been successfully adopted by Brazil, Argentina and Turkey.

When his attention was drawn towards the viewpoint of the privatization ministry which says the government should allow the private sector to purchase shares of Discos along with management, the official said the Discos’ current health and environment would not fetch reasonable revenue after dolling out some shares. The only viable option left with the government is to hand over the Discos to the private sector on long-term concession agreements under which private companies would also invest in upgradation of distribution system and reduce the losses.

He said, “If the government goes for the privatisation of Discos, issues about the properties of Discos and their land would take a longer time to get settled, resulting in too much delay. The government cannot afford more delay, so the decision has been taken to hand over the Discos to the private sector under long-term concession agreements.”