WEB DESK: According to a Business Recorder exclusive the Ministry of Water and Power is seeking consent of the World Bank and Asian Development Bank for sale of assets of the Faisalabad Electric Supply Corporation (Fesco) as is required under the framework financing agreement.
The approval would no doubt be contingent on the percentage share offer as well as the sale price of the assets however the perception that multilaterals support privatisation over state control as the most appropriate way to enhance performance and meet costs fully would lead one to conclude that the consent would in all probability be forthcoming.
Critics of the Sharif administration however continue to cite the party’s manifesto prior to the 2013 elections to accuse the party of not following its own manifesto promises in which it clearly and unambiguously stipulated that as the objective is to plug the heavy annual bailout packages to inefficiently run state-owned entities, estimated at over 500 billion rupees per annum, therefore loss making units would be put up for sale that may require restructuring.
Fesco is by no means a loss- making unit and instead is a profit-making entity which would imply that its sale may compound the sectoral losses and fuel circular debt.
In its own defence, the government can cite its first letter of intent (LoI) dated August 2013 submitted to the International Monetary Fund board, a prerequisite for approval of the 6.64 billon dollar Extended Fund Facility, in which it is stated that “we are working on a time-bound strategy for 65 PSEs approved for privatisation by the Council of Common Interest (CCI) to facilitate decisions to either privatise firms, restructure those with prospects of profitability but which the government wishes to retain in the public sector or close nonviable firms.”
The LoI further committed that the government would “transfer governance of DISCOs and the NTDC to new boards of directors and management.” Fesco one can safely assume as a profit-making entity comes under the category of privatisation which, in this case, may well imply that the intent of the government at this stage maybe to generate some resources for the beleaguered economy heavily reliant on borrowing rather than with the expectation that private sector management would further enhance profits.
Two major elements that plague attempts at privatisation are resistance by the (i) workers/employees – strong Fesco union workers’ opposition is already surfacing with the Minister of State for Water and Power Abid Sher Ali already engaged in assuring workers that their interests would be safeguarded; and (ii) the percentage sale of shares as over 75 percent share sale would imply all financing decisions can be taken by the private investors.
The Financial Advisor proposed three possible sale scenarios namely 51 percent share sale, 76 percent share sale, and 88 percent share sale (with 12 percent shares earmarked for the workers under the Benazir Employees Stock Option Scheme) with the recommendation that 76 percent share sale be approved. However in this instance if the financing decisions are allowed to be made by the strategic investor then the issue of pricing of the output namely electricity must also rest with the investor or else subsidies would have to be released by the government as in the case of K-Electric thereby defeating one of the major objectives of privatisation.
It is significant in this context to recall that the Secretary Water and Power in one of his briefings to the cabinet did refer to the performance of the privatised K-Electric, which continues to rely on massive government subsidies as well as on the purchase of relatively cheaper electricity from the national grid rather than in maximising its own capacity generation as an example to temper the Sharif administration’s enthusiasm and support for privatisation.
His caution has not worked towards strengthening the perception that the focus is on revenue generation at the present time. Additionally, Fesco reportedly has possession of only 98 out of a total of 120 properties and one would caution the government that the sale be based not on a promise to deliver all the 120 properties in time as in the case of privatisation of PTCL it has failed to transfer all properties leading to the pending 800 million dollars.