May 19, 2022

Vanthuluutru

Fine Art Of Business

Transactions related to Discos: Govt to hire financial advisor; WB’s assistance to be sought

4 min read

ISLAMABAD: The Government has decided to seek financial assistance from World Bank to hire an international Financial Advisor for a transaction relating to power Distribution Companies (Discos), well informed sources told Business Recorder. This was decided at a meeting chaired by the Secretary Privatisation Commission (PC), convened to discuss possibilities of hiring a reputed international Financial Advisory Consortium (FAC) in a transaction of private sector participation in the management of Discos with the support of donor agencies/ development partners.

The PC team apprised the meeting’s participants: (i) Cabinet Committee on Privatisation (CCoP) in its meeting held on January 04 2021 directed Privatisation Commission to initiate process for private sector participation in the management of Discos, in consultation with Power Division; and (ii) Power Division indicated that the objectives for the initiative is to engage private sector in management of the ten Discos to reduce Aggregate Technical and Commercial (ATC) losses and to improve quality of services delivery and consumer satisfaction.

In order to firm up recommendations and formulate a way forward, a “Working Group”, consisting of representatives from PC, Power Division, PEPCO, CPPA-G and NEPRA was constituted. A team of international professionals was also included in the group with the support of World Bank. The Working Group after studying various international models, proposed Concession Model for eight of the Discos, while a Management Contract Model was proposed for QESCO and TESCO.

PC Board in its meeting held on March 24, 2021 considered the report of Working Group and agreed that Concessions or Management Contracts are the best options for the private sector participation in management of Discos. However, for this purpose, FAC of international repute should be hired to carry out a quick analysis of each Disco, keeping in view the specific state of affairs – including customer base, revenue stream, technical & operational assets base, financial health, investment requirements, legal & regulatory aspects, etc., and recommend specific transaction structure (Concession or Management Contract) for each Disco separately, along with sequencing of the transaction.

Recommendations of PC Board were approved by the CCOP in its meeting held on May 12, 2021 and ratified by the Cabinet on June 08, 2021.

Dec 2021 Nepra agrees to raise Discos’ tariff by Rs3.09/unit

After soliciting additional input from the relevant stakeholders, Expression of Interest (EoI) was published in the national and international print media on September 18, 2021 for hiring of Financial Adviser for the transaction. The Eols were re-advertised twice and the last date for submission of EOI was extended to November 30, 2021.

According to the PC, despite all out efforts, only two Consortiums showed their interest, but they were not found suitable for this multi-dimensional complex transaction.

According to PC, it can be safely ascertained that there is not much interest of reputed parties for advisory services for the subject transaction mainly due to historical legacies and complexities of the sector.

PC maintained that at this stage there is a need to solicit support of donor agencies/ development partners and explore possibilities of engaging reputed international parties for the subject transaction.

Additional Secretary, Finance Division opined that simultaneous transaction of all Discos might be the main reason that reputed parties have not shown interest for the transaction.

He; therefore, proposed that instead of repeating the same process, transaction of each DISCO may be taken up separately. Member, PSD&C, Planning, Development and Special Initiatives Division expressed the view that PC may liaise with international investment banks of high repute through Finance Division and provide them RFP package directly for submission of their proposals’ for advisory services. He also contended that institutions like IFC can also be approached for the purpose. Deputy Secretary EAD stated that the GoP can approach donor agencies for provision of loan or grant for the transaction but there may be better possibility of availing a loan. In response to comments of the participants, PC officials noted that sequencing of Discos for private sector participation has been thoroughly discussed with the stakeholders and consensus reached that FAC on the basis of diagnostic analysis would suggest a way forward in this regard.

During the meeting, it was also re-iterated by PC team that technical support is being solicited from the donor agencies for appointment of a credible consortium of international repute which can successfully accomplish the transaction. After detailed deliberation on various aspects of the matter, following way forward was recommended with consensus;- (i) Privatisation Commission, in consultation with Power Division will develop a concept paper and forward the reference to EAD for Technical Support grant for the said purpose;(ii) EAD and Power Division will also look into the possibility of including the transaction in the ongoing $20 million World Bank project for reform of Discos, being implemented by the Power Division; and (iii) all concerned parties will take necessary action(s) on their part at the earliest. The sources said, Economic Affairs Division (EAD) has convened a meeting on Friday (today) to discuss the proposal with the World Bank.

Copyright Business Recorder, 2022

https://www.brecorder.com/news/40153678/transactions-related-to-discos-govt-to-hire-financial-advisor-wbs-assistance-to-be-sought

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