Investors have shown strong interest in the federal government’s plan to privatize three major power distribution companies but have made it clear that they will only participate if key financial, regulatory, and operational concerns are addressed before the bidding process begins.
According to an investor feedback report prepared for the Privatization Commission, potential buyers are seeking longer tariff guarantees, stronger legal protections, and greater operational flexibility before committing to the proposed sale of Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO), and Islamabad Electric Supply Company (IESCO).
The report was compiled following investment roadshows held in Pakistan, Türkiye, Saudi Arabia, and China, where officials presented the government’s privatization plans to local and international investors.
Longer tariff guarantees sought
One of the primary concerns raised by investors relates to the current five-year multi-year tariff regime.
According to the report, investors want the tariff framework extended to seven to ten years, arguing that a longer regulatory period would provide greater financial certainty and encourage long-term investment in electricity distribution infrastructure.
They believe stable tariffs are essential for recovering investment costs while improving operational efficiency across the distribution companies.
Shift toward company-specific tariffs
Investors also proposed replacing Pakistan’s existing uniform electricity tariff system with company-specific tariffs based on the performance and efficiency of each power distribution company.
They argued that such a model would reward efficient utilities while encouraging improvements in service delivery, financial management, and loss reduction.
Regulatory certainty remains a key concern
The report highlights concerns that future governments, regulatory changes, or court decisions could alter agreed tariff structures or contractual commitments after privatization.
To address these risks, investors have asked the government to introduce legal safeguards that would protect investment agreements and ensure predictable regulatory policies.
They also recommended that capital expenditure plans be finalized before bidding begins and urged the National Electric Power Regulatory Authority (NEPRA) to issue tariff determinations on time.
Demand for greater ownership flexibility
Several investors expressed interest in acquiring full ownership of the power distribution companies rather than partial stakes.
The report notes that many potential buyers also want permission to invest in more than one distribution company, provided competition rules are maintained.
Some participants suggested the government retain a minority shareholding in IESCO because of its large portfolio of government consumers and strategic importance.
Greater operational independence
Investors also called for increased operational freedom after privatization.
They proposed allowing privatized utilities to purchase electricity from competitive suppliers instead of relying solely on existing arrangements.
In addition, they opposed transferring costly legacy obligations linked to Independent Power Producers (IPPs), arguing that these financial liabilities could reduce the attractiveness of the assets.
New business opportunities identified
Beyond electricity distribution, investors identified several opportunities to generate additional revenue.
These include:
- Smart metering services
- Electric vehicle charging infrastructure
- Telecom tower and fiber infrastructure
However, they emphasized that clear policies governing revenue sharing and commercial rights would be necessary before making significant investments.
Concerns over subsidies and currency risks
The report also identified delayed government subsidy payments as a significant financial risk.
In particular, investors pointed to pending subsidy reimbursements related to Azad Jammu and Kashmir (AJK), warning that payment delays could negatively affect cash flows.
Foreign investors additionally expressed concerns over exchange rate volatility, overseas borrowing costs, and the ability to repatriate dividends without restrictions.
Government expected to address concerns
Despite these challenges, the report concludes that investor interest in the privatization of FESCO, GEPCO, and IESCO remains strong.
However, it notes that the success of the privatization process—and the likelihood of competitive bidding—will largely depend on whether the government addresses investors’ concerns regarding tariffs, regulations, ownership rights, and financial safeguards before moving to the next stage.
The privatization of the three distribution companies forms part of the government’s broader economic reform agenda aimed at improving efficiency, reducing financial losses in the power sector, and attracting private investment.
Also read: Power DISCOs Report Rs226 Billion Losses
