ISLAMABAD: Pakistan has decided to follow the Turkish model through outsourcing the management of power distribution companies (DISCOs) in an attempt to reduce losses, bring efficiency and attract investment.
To adopt the Turkish model, the government of Pakistan has agreed with the International Monetary Fund (IMF) that it will engage a transaction adviser for long-term concessions by the end of April 2024. The World Bank has offered a grant-based technical assistance and risk guarantee instruments, which give greater confidence to the prospective private concession holders and their lenders. The International Finance Corporation has expressed interest in providing transaction advisory services.
Sources revealed that policymakers were informed in a recent meeting of the Cabinet Committee on Privatisation (CCOP) that a long-term concession model had delivered the benefits of private sector participation in Turkey, Argentina, Brazil, Uganda and other countries. Policymakers noted that under such concessions, Turkey’s 20 DISCOs attracted a much larger private sector investment than under the public sector, ensured much better service quality for consumers and reduced losses by one-third in a decade.
The meeting was informed that Turkey secured the jobs of most of the staff of DISCOs for the first five years along with only 3-5% long-term increase in tariffs.
Pakistan’s policymakers noted that a similar experience was required to be followed in Pakistan whereby the government would agree with concession holders on a gradual reduction in liabilities through loss reduction without a significant increase in tariffs.
They said that DISCOs would then secure a much better value from privatisation. There was unanimity of views among the policymakers that the handing over of DISCOs to provincial governments was unlikely to result in the required strategic shift.
Furthermore, provincial authorities had laid a number of conditions for taking over the ownership of DISCOs, which may not be supportive of efforts to improve their operational performance and may delay the process further.
There was consensus that privatisation was the best solution. However, the policymakers stated that the sale of government assets had often come under legal and political pressure on account of valuation of assets. Any sale of assets at throwaway prices had the potential to derail the entire process.
