The World Bank (WB) has agreed to extend financial support to the government of Pakistan to facilitate private sector participation in the privatization of power Distribution Companies (Discos). This move aims to improve efficiency in the power sector and address the growing issue of circular debt.
In response to a letter from the Secretary of the Economic Affairs Division (EAD), the World Bank’s Country Director confirmed that the Bank is currently engaged with the Power Division (PD) through the Electricity Distribution and Efficiency Improvement Project (EDEIP). A significant focus of this project, particularly through Component 4, is supporting power sector reforms.
The World Bank has clarified that introducing Public Sector Partnership (PSP) in Discos aligns with the project’s development objectives. Technical assistance funding under this project can be used to support these reforms. The Bank has already engaged several international and national experts to work on the prerequisites for engaging private investors.
The World Bank emphasized that a critical task for the successful completion of these prerequisites is the finalization of the Terms of Reference (ToR) for the Transaction Advisor (TA) and initiating the hiring process. This task, to be undertaken by the Privatization Commission (PC), is essential for meeting the timeline of issuing the first Request for Proposal (RFP) by May 2025. The TA must be onboard by September 2024.
The approval of the ToR, budget, and financing source for the TA, including the hiring process, is crucial. The presence of the PC working jointly with the PD and the World Bank team to finalize the ToR and steps is vital. The Bank is ready to discuss various financing instruments and resources to support the downstream implementation of this initiative, especially considering that Discos’ performance has been a key contributor to the growing circular debt in the power sector.
The Secretary of the EAD had approached the World Bank for Non-Lending Technical Assistance (NLTA) to facilitate private sector participation in the privatization of Discos. The Ministry of Energy (Power Division) intends to utilize the World Bank’s support under NLTA for several activities to encourage private sector involvement in Discos. These activities include:
Drafting guidelines for private sector participation in Discos and the competitive process for inviting private investors/operators. Conducting sector financial sustainability and sensitivity analysis, including developing a sector financial model, a framework on uniform tariffs for Discos, and procedures for managing Discos’ liabilities and subsidies. Updating licensing eligibility criteria and rules for distribution and suppliers of last resort. Developing a communication strategy and implementation action plan. Proposing an HR strategy and action plan for implementation. Assessing the impact of market evolution on private sector participation in Discos.
EAD has requested the World Bank to consider the Ministry of Energy’s proposal and commit to supporting it under NLTA.
Recently, a high-level meeting presided over by Prime Minister Shehbaz Sharif decided to privatize certain power distribution companies. In Phase-I, Islamabad Electric Supply Company (IESCO), Gujranwala Electric Power Company (GEPCO), and Faisalabad Electric Supply Company (FESCO) will be fully privatized. In Phase-II, Lahore Electric Supply Company (LESCO), Multan Electric Power Company (MEPCO), and Hazara Electric Supply Company (HAZECO) will follow.
Meanwhile, Sukkur Electric Power Company (SEPCO), Hyderabad Electric Supply Company (HESCO), and Peshawar Electric Supply Company (PESCO) will be offered long-term concession agreements to the private sector. Tribal Areas Electric Supply Company (TESCO) and Quetta Electric Supply Company (QESCO) will remain under government control due to their unique conditions.
The Privatization Commission has been directed to hire a transaction advisor and complete the necessary formalities to finalize Phase-I transactions by January 2026. Additionally, the Power Division will engage a technical advisor to review the regulatory and policy framework for the privatization and outsourcing of Discos.
