Pakistan to earn billions of dollars by privatization loss making entities
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The interim government is currently exploring two significant options in response to the persistent challenges posed by circular debt and line losses within the power sector. One of these options involves the privatization of both power generation companies (Gencos) and distribution companies (Discos). The alternative approach being considered is the transfer of management control of these entities to private organizations for a substantial duration, ranging from 20 to 25 years.
This shift in policy direction is primarily motivated by the urgent need to address the mounting circular debt crisis in the power sector. The circular debt has swelled to an alarming Rs2.3 trillion, representing a grave threat to the sector's long-term sustainability. Consequently, the government is opting to step away from direct involvement in the day-to-day business operations of these entities.
It's noteworthy that the circular debt issue isn't limited to the power sector alone. The gas sector is also grappling with its own substantial circular debt, which has surged to Rs2.8 trillion. This sum includes Rs2.1 trillion in principal amounts and up to Rs700 billion in late payment surcharges. When these staggering figures from the gas and power sectors are combined, they amount to a colossal Rs5.1 trillion, equivalent to over $17 billion.
Caretaker Minister for Energy, Muhammad Ali, recently provided insight into the government's plans. He disclosed that, aside from the 10 state-run distribution companies, the government is contemplating the transfer of management responsibilities for four power generation plants under a long-term concession agreement. This arrangement would involve entrusting private entities with the management of these plants for a potential period of up to 25 years, allowing for investments and infrastructure improvements. Additionally, discussions are underway with the World Bank's International Finance Corporation (IFC) for potential long-term concession agreements.
In summary, the interim government is adopting a new strategic approach to address the challenges posed by circular debt and line losses in the power sector. Whether through privatization or long-term concession agreements, the aim is to alleviate financial burdens, encourage investments, and enhance the overall sustainability of these vital energy entities. The scale of the circular debt issue necessitates innovative solutions to ensure the continued provision of reliable electricity to the nation.
