Transactions related to Discos: the government will hire a financial adviser; WB assistance to be sought

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ISLAMABAD: The government has decided to seek financial assistance from the World Bank to hire an international financial adviser for a transaction relating to electricity distribution companies (Discos), informed sources have said company registrar. This was decided at a meeting chaired by the Privatization Commission (PC) Secretariat, convened to discuss the possibilities of engaging a reputable International Financial Advisory Consortium (FAC) in a private sector participation transaction in the management of Discos with the support of donor agencies/ development partners.

The PC team informed the participants of the meeting: (i) that the Cabinet Committee on Privatization (CCoP), in its meeting held on 04 January 2021, requested the Privatization Commission to initiate a process private sector participation in the management of Discos, in consultation with the Energy Division; and (ii) Power Division indicated that the objectives of the initiative are to involve the private sector in the management of the ten Discos in order to reduce overall technical and commercial (ATC) losses and improve the quality of service delivery. service and consumer satisfaction.

In order to solidify the recommendations and formulate a way forward, a ‘working group’, consisting of representatives from PC, Power Division, PEPCO, CPPA-G and NEPRA was formed. A team of international professionals has also been integrated into the group with the support of the World Bank. The working group, after studying various international models, proposed a concession model for eight of the discos, while a management contract model was proposed for QESCO and TESCO.

The PC Board, in its meeting held on March 24, 2021, considered the report of the working group and agreed that concessions or management contracts are the best options for private sector participation in the management of Discos. However, to this end, an internationally recognized FAC should be hired to perform a quick analysis of each Disco, keeping in mind the specific situation – including customer base, revenue stream, technical asset base and operational, financial health, investment needs, legal and regulatory aspects, etc., and recommend a specific transaction structure (concession or management agreement) for each nightclub separately, as well as the sequencing of the transaction.

The recommendations of the PC Board were approved by the CCOP during its meeting of May 12, 2021 and ratified by the Cabinet on June 08, 2021.

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After soliciting additional input from relevant stakeholders, an Expression of Interest (EOI) was published in national and international print media on September 18, 2021 for the engagement of a financial advisor for the transaction. EOLs have been reposted twice and the deadline for EOI submissions has been extended to November 30, 2021.

According to CP, despite all efforts, only two Consortia expressed interest, but they were not deemed suitable for this complex, multidimensional operation.

According to PC, it can be said with certainty that there is not much interest from reputable parties in advisory services for the transaction in question, mainly due to the historical legacies and complexities of the sector.

PC argued that at this stage it is necessary to seek support from donor agencies/development partners and explore possibilities of engaging reputable international parties for the transaction in question.

The Additional Secretary, Finance Division believed that the simultaneous transaction of all Discos could be the main reason why reputable parties did not show interest in the transaction.

He; therefore, proposed that instead of repeating the same process, each DISCO’s transaction could be done separately. Member, PSD&C, Planning, Development and Special Initiatives Division expressed the view that PC can liaise with reputable international investment banks through the Finance Division and provide them directly a request for proposals document for the submission of their proposals for advisory services. He also argued that institutions like the IFC can also be approached for this purpose. Deputy Secretary EAD said GoP can approach donor agencies for a loan or grant for the transaction, but there may be a better chance of getting a loan. In response to participant feedback, PC officials noted that the sequencing of Discos for private sector participation was thoroughly discussed with stakeholders and consensus was reached that the FAC , based on a diagnostic analysis, would suggest a way forward in this regard.

During the meeting, it was also reiterated by the PC team that technical support is sought from donor agencies for the appointment of a credible consortium of international reputation that can successfully complete the transaction. After detailed deliberations on various aspects of the matter, the following way forward was recommended by consensus; – (i) the Privatization Commission, in consultation with the Energy Division, will develop a concept paper and forward the reference to EAD for the technical assistance grant for this purpose; (ii) EAD and Power Division will also explore the possibility of including the transaction in the ongoing $20 million World Bank Discos Reform Project being implemented by the Power Division; and (iii) all parties concerned will take the necessary measures on their part as soon as possible. The sources said the Economic Affairs Division (EAD) has called a meeting on Friday (today) to discuss the proposal with the World Bank.

Copyright Business Recorder, 2022

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