Govt may offer up to 20% return to buyers of three power distribution companies

The government is likely to offer prospective buyers of three power distribution companies returns of up to 20% through regulatory reforms, operational improvements, changes in the electricity buying and selling model and permission for self-generation, Business Recorder reported, citing Adviser to the Prime Minister on Privatisation Muhammad Ali. 

Muhammad Ali, while talking to journalists, shared the proposed framework, saying that the Privatisation Commission Board had already approved a restructuring plan for power distribution companies to prepare them for privatisation.

He said investors will be offered a base return of 14% to 15%, which could rise to 18% to 20% if they improve efficiency and reduce losses.

He said local investors had not demanded a dollar-based tariff and had been informed that tariffs would remain rupee-based. He added that dollar-denominated returns would not be viable as a significant number of consumers had already moved away from the distribution companies’ system.

The government plans to set key performance indicators covering operational performance, load-shedding, losses and recoveries.

Muhammad Ali said investors were not interested in the current distribution company model and wanted a new structure that ensured viable returns. He said they were comfortable with a rupee-based tariff.

Investors have also called for strengthening the National Electric Power Regulatory Authority, saying the regulator’s capacity is weak and its discretionary powers should be limited. They said the regulator should focus on supervision, regulation and monitoring.

Another key proposal is to allow self-generation without government guarantees and introduce competition in electricity buying and selling by reducing the government’s role in these activities.

Muhammad Ali said the distribution companies being privatised would have a uniform tariff instead of differential tariffs, though certain assurances would be provided to investors.

Investors have asked the Privatisation Commission to resolve outstanding issues with the government before bidding begins. The commission has agreed to work with stakeholders on these matters.

The deadline for submission of expressions of interest for Faisalabad Electric Supply Company is July 7, 2026. The deadline for Gujranwala Electric Power Company is August 7, 2026, while Islamabad Electric Supply Company has a deadline of September 7, 2026.

Bidding will be carried out sequentially with a one-month gap, targeting October, November and December 2026.

Muhammad Ali said all major issues would have to be addressed before October 2026.

Investors have also sought locking in of multi-year tariffs for eight to 10 years. The proposed structure includes a regulated multi-year tariff-backed return of around 13.2% to 13.4% with downside protection and upside potential for outperforming regulatory benchmarks.

The plan assumes nearly 100% revenue recovery for each company, compared with the industry average of 96.6%. Transmission and distribution losses are expected to range between 8.6% and 10.6%, against the national average of 18.1%.

To make the entities bankable, legacy payables and receivables will be settled or adjusted, selected assets and pension liabilities will be carved out, and land will be separated with long-term lease-back arrangements.

Government share deposits will be converted into equity, allowing the companies to start with relatively debt-light balance sheets.

Investors may acquire between 51% and 100% equity with full management control. The final stake for each company will be decided during pre-bid meetings.

Bidders may participate individually or through consortia, but ownership will be restricted to one Batch-I distribution company.

He said the government expected to complete five distribution company-related transactions during FY2026-27. Three companies will be privatised, while HESCO and SEPCO will be offered on a long-term concession.

According to him, privatisation cannot move forward unless investors are assured that their interests will be protected.