CCoP approves private sector participation in DISCOs' operation, paving the way for privatization

ISLAMABAD: In a significant development aimed at addressing the longstanding operational challenges faced by Pakistan's power distribution companies (DISCOs), the CCoP has approved the adoption of a long-term concession model for private sector participation in the management of two DISCOs, namely GEPCO and HESCO.

According to sources, this decision, made during a recent meeting of the Cabinet Committee on Privatisation (CCoP) held on 7th February 2024, signals a strategic shift towards improving governance, modernizing operations, and attracting much-needed investments in the power sector.

The move comes after extensive deliberations by the Power Division, which identified poor governance and inadequate investment as key challenges plaguing the DISCOs. Recognizing the limitations of previous attempts to transfer DISCOs to provincial governments, the government opted for a privatization strategy, viewing it as the most viable solution to drive efficiency and performance improvements.

The decision to adopt the long-term concession model was backed by successful precedents in countries like Turkey, Argentina, Brazil, and Uganda, where private sector participation in power distribution led to significant improvements in service quality, loss reduction, and increased investment. Under this model, the government will engage with concessionaires to gradually reduce government liabilities while ensuring minimal impact on consumer tariffs.

Moreover, the CCoP decided to annul the previous cabinet's decision to transfer DISCOs to provincial authorities, reaffirming the commitment to keep all DISCOs on the privatization list. Additionally, the proposal to appoint the International Finance Corporation (IFC) as the transaction advisor was not approved by the CCoP. Instead, the commission directed the hiring of a financial advisor in accordance with established procedures.

Furthermore, the CCoP directed the Privatisation Commission to lead the process of offering DISCOs through long-term concession, with support from the Power Division. It also approved the constitution of a Technical Working Group to expedite the process and ensure technical requirements are met.

CCoP also directed power division to submit the case to federal cabinet for bifurcation of two DISCOs namely LESCO and MEPCO, with no increase in the existing human resource of the proposed DISCOs after bifurcation. This measure aims to enhance the management efficiency of these DISCOs and streamline operations.

The power division through a summary for CCoP titled as “Private sector participation in operation of DISCOs through long term concessions leading to their eventual privatization” proposed to CCoP to consider and grant approval to following proposals:

1.   Delisting of all DISCOs from provincialization and privatization list,
2.   Offer DISCOs through concession model;
3.   Constitution of Ministerial Steering Committee under the chairmanship of Minister for      Energy along with Minister for Privatisation, Minister for Law and Minister for Planning.
4.   Constitutional of Technical Working Group under power division to support the            ministerial committee with composition to be determined by minister for energy as per    requirement.
5.   Appoint IFC as Transaction Advisor; and
6.     Action Plan with responsibility matrix and timelines.

 It is pertinent to mention that the approval of the long-term concession model marks a significant milestone in the government's efforts to reform the power sector, attract private investment, and improve service delivery.