THE Privatisation Commission recently extended the date for the submission of expression of interest (EOI) regarding a financial advisory consortium (FAC) to plan and implement the transaction for private-sector participation in the management of distribution companies (Discos) using a concession or management contract model.
The FAC, to be led by an international investment bank or financial institution, should have a lead financial adviser and its sub-consultants, including firms looking after accountancy, law, technicalities, human resources, employee relations and media affairs.
The sub-consultants may participate in the process on an exclusivity basis, meaning one party with one consortium only. Interested parties are asked to submit EOI for evaluation and shortlisting to the next phase that would entail request for proposals.
The FAC with six members and the condition of exclusivity may add to the challenges. The FAC will be required to achieve the key objectives, such as reduce average transmission and distribution losses of each Disco to the level allowed by the National Electric Power Regulatory Authority (Nepra), and to improve quality of services delivery and consumer satisfaction. These objectives may also be substantially achieved by the Discos if these were supported by the power ministry, providing sufficient funds for improving the technical infrastructure involved in the distribution of electricity.
The board of directors has been reconstituted recently and the power ministry could encourage it to meet all objectives, including reduction of losses and full recovery of electricity bills.
The Discos in a way are presently in a peculiar situation. They purchase electricity in bulk on predetermined tariff and are required to sell to consumers in retail on prescribed tariffs. There is very limited flexibility available to the managements of Discos for improving performance.
The privatisation process of three Discos — the Islamabad Electric Supply Company (Iesco), the Lahore Electric Supply Company (Lesco), and the Faisalabad Electric Supply Company (Fesco) — was initiated earlier in 2015 as was agreed with the International Monetary Fund (IMF). But it was abandoned halfway through the process.
According to Discos’ performance 2019-20 report, those in Sukkur, Hyderabad and Peshawar breached the Nepra-prescribed target of transmission and distribution losses by more than six per cent. The one in Quetta breached the target by over 9pc, which was the biggest margin.
The government should start the concession or management contract model process for these Discos in stage one, while the rest may be considered by the FAC in the second stage.
The people of Karachi are reportedly paying higher average tariffs after the privatisation of Karachi Electric Supply Company compared to the tariffs of all other Discos. Can it be expected that after the completion of the present initiative, the consumers of these Discos will be protected from increases in average tariffs?
The authorities, after holding on for six years, have reportedly decided to shelve the Lesco component of the advanced metering infrastructure (AMI) project funded by the Asian Development Bank (ADB). The ADB had approved a $400 million loan for the project in 2015 for installing 1.7 million smart metres within Lesco jurisdiction, and 0.9 million metres in the area covered by Iesco.
Sadly, this will give a shock to the plan of improving efficiency and reducing line losses within the jurisdiction of Lesco. Just imagine what positive impact had occurred if the original project was timely completed and replicated in areas of all other Discos.
Muhammad Bashir Chaudhry
Karachi
Published in Dawn, November 10th, 2021
