Pakistan to adpot Turkish model for power sector privatization

Pakistan has made the strategic decision to introduce Turkey’s approach by outsourcing the administration of power distribution companies (DISCOs). This move is intended to decrease losses, enhance efficiency, and encourage investment.

The Pakistani government has reached a consensus with the International Monetary Fund (IMF) to employ a transaction adviser specializing in long-term concessions by April 30, 2024, to emulate the Turkish model. The World Bank has extended risk guarantee and grant-based technical assistance instruments, which instill prospective private concession holders and their lenders with greater confidence. Interest has been expressed by the International Finance Corporation in the provision of transaction advisory services.

According to sources, at a recent meeting of the Cabinet Committee on Privatisation (CCOP), policymakers were apprised that private sector participation in Turkey, Argentina, Brazil, Uganda, and other nations had been effectively implemented through a long-term concession model.

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Policymakers observed that Turkey’s 20 DISCOs attracted significantly more private sector investment than public sector investment, improved service quality for consumers significantly, and reduced losses by one-third over a decade as a result of these concessions.

It was reported at the meeting that Turkey had secured employment for the majority of DISCO employees for the initial five years, with only a 3-5% long-term increase in tariffs.

Pakistan officials observed that a comparable scenario necessitated a replication in which the government reached an agreement with concession holders regarding a phased decrease in liabilities via loss reduction while avoiding a substantial escalation in tariffs.

They claimed that privatization would subsequently obtain a significantly higher value for DISCOs. The consensus among policymakers was that the transfer of DISCOs to provincial governments was not likely to induce the necessary strategic shift.

In addition, provincial authorities imposed several stipulations regarding the acquisition of DISCO ownership, which might impede endeavors to enhance their operational efficiency and further postpone the procedure.

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The consensus was that privatization constituted the optimal course of action. Nevertheless, policymakers asserted that the valuation of said assets frequently prompted legal and political pressure on the transfer of government assets. The sale of assets at disposal prices possessed the capacity to disrupt the entire undertaking.

Furthermore, there were persistent legacy concerns regarding asset ownership (DISCOs vs. Wapda), which posed a significant obstacle to the process of privatization.

It was noted that the energy minister and the privatization minister would present a firm proposal and discuss the concession model/outsourcing at the subsequent CCOP huddle.

The Power Division disclosed that extensive consultations were conducted with relevant entities and international financial institutions to develop a practical solution for integrating modern expertise, information, and communication technology, a private sector-oriented culture of governance and management, and attracting sufficient investment in DISCOs.