Islamabad, Aug 3: In the final stage of privatization, the Cabinet Committee on Privatization approved the sale of four power generation companies and six of the most loss-making power distribution companies on Friday. This move will cause the power sector to continue suffering for years to come, with a total annual loss of over Rs200 billion.The choice to sell off the most financially troubled power distribution businesses during the next three years implies that, in spite of exorbitant electricity rates, customers will continue to foot the bill for their losses.
The CCOP also authorized a Rs7.7 billion budget for the employment of financial consultants for the entities’ privatization, but postponed making a decision on whether to include 16 more government-owned businesses on the list of active privatizations. Additionally, it removed two government-owned LNG-fired power facilities off the list of those to be privatized.
The CCOP, led by Senator Mohammad Ishaq Dar, the Deputy Prime Minister and Foreign Minister, reaffirmed its three-month-old resolution to privatize 24 businesses, many of which have been on the list of operating companies for years. The ruling states that the ten loss-making power sector companies will be sold in a timeframe of one to three years.
The decision to transfer Oil and Gas Development Company shares to the Sovereign Wealth Fund or the Petroleum Division was not made by the CCOP. In accordance with the SOE Act and Policy, the committee examined 84 State-Owned Enterprises (SOEs) in accordance with the Federal Footprint SOEs Consolidated Report FY2020–22, the privatization ministry said in a statement following the meeting.
According to the privatization ministry, “The CCOP decided that other SOEs will be included in the privatization program upon completion of the review by the Cabinet Committee on State-Owned Enterprises (CCoSOEs) regarding categorization of Strategic and Essential SOEs, while approving 24 entities for the Privatization Programme (2024-29).”
The CCOP approved the phasing plan and reiterated its decision from May 10th to privatize these 24 enterprises. The second and third phases will see the privatization of the larger loss-making enterprises. Regarding the inclusion of 16 SOEs in the privatization program, the privatization ministry had asked the CCOP to take into account proposals from the relevant ministries and the Ministry of Privatization.
There are still 41 SOEs that need to be approved by CCoSOEs since they are deemed strategic and vital. The government’s privatization initiative has been sluggish, costing successive administrations billions in consulting fees for financial experts brought in to help with the sale.
Although 18 of the 24 firms on the list were already a part of the ongoing program, the CCOP approved the list of 24 entities for privatization in May. The privatization of Pakistan International Airlines (PIA) and the House Building Finance Corporation were not completed by the coalition government’s scheduled completion dates of early August and late July, respectively.In the second or third phase, which will take place over the following three to five years, the coalition administration planned to privatize 14 of the 24 enterprises. State Life Insurance Corporation, Pakistan Reinsurance Corporation Limited, and Utility Shops Corporation and Pakistan Life Insurance Company.
Hyderabad Electric Supply Company (HESCO), Lahore Electric Supply Company (LESCO), Multan Electric Power Company (MEPCO), Hazara Electric Company (HAZECO), Peshawar Electric Supply Company (PESCO), Sukkur Electric Power Company (SEPCO), and four power generation companies will be part of the second phase. The finance ministry reports that the six electricity distribution businesses lost Rs181 billion in 2023, compared to Rs19 billion for the four power producing companies.
In the first phase, the CCOP opted to privatize the Gujranwala Electric Power Company (GEPCO), the Faisalabad Electric Supply Company (FESCO), and the Islamabad Electric Supply Company (IESCO). Despite being seen as quite efficient, these corporations also suffered losses; in 2023, FESCO lost Rs. 15 billion, IESCO lost Rs. 666 million, and GEPCO made profits of Rs. 23 billion.
A reluctance to make difficult political decisions is seen in the decision not to privatize the largest loss-making enterprises in the first phase. Given both PIA and the Roosevelt Hotel New York were already in the process of being privatized, the government decided to include them in the first phase, which was scheduled to be finished in a year.
Additionally, the CCOP delisted the Jinnah Convention Center, Republic Motors, and National Power Parks Management Company Limited from the privatization initiative. The committee gave its approval to the privatization’s policy guidelines. Priority should be given to minimizing the federal presence in commercial areas and restricting it to strategic and vital SOEs exclusively, according to the CCOP’s recommendation. It made clear that lucrative SOEs would also be taken into consideration for privatization.
The CCOP will assess the organizations not classified as strategic or vital before adding them to the privatization program. It stated that the loss-making facilities will remain in place and that only the combined cycle, efficient power plants from the four GENCOs would be designated for privatization.
Approving the budget
The Privatization Commission was given a Rs8.2 billion budget by the CCOP, of which Rs7.7 billion was set out for the appointment of financial consultants. The remaining payments to the financial advisor for PIA are slated to total Rs1.2 billion, the financial advisor for the Roosevelt Hotel is to receive Rs2.1 billion, and the cost of appointing consultants for the sale of four power distribution businesses is to total Rs4.2 billion.
