Approves of second option to transfer land assets under long-term lease agreement
The Cabinet Committee on Privatisation (CCoP) has turned down the proposed plan to sell all core land assets of Faisalabad Electric Supply Company Limited (Fesco) at the current market value as the government seeks to privatise the power utility.
Officials at the Ministry of Water and Power said that a committee constituted by the CCoP had presented two options in its meeting held on October 2, which also included selling all core land assets of Fesco. But this proposal was turned down.
According to the privatisation division, the CCoP, in a meeting held on September 17, considered the summary regarding approval of the transaction structure for the privatisation of Fesco and decided to sell 74% government stake in the power utility along with the transfer of management control to the private sector partner.
The CCoP committee comprised Privatisation Commission Chairman Muhammad Zubair, Ministry of Water and Power joint secretary and the additional secretary finance
After a series of meetings, the committee submitted its report to the PC Board and recommended two options.
The committee proposed to transfer all core land assets of Fesco under a long-term lease agreement, coinciding with the life of the distribution licence.
The lease rental will be determined on the current market value. The rent, however, will be at a base yield of 6% and increased according to rental laws; by 25% every three years. Due restrictions would be put on the use of land which may only be used for the purposes of Fesco as a electricity distribution entity.
The second option was to sell all core land assets at the current market value.
CCoP considered these two options and approved of the first one, which proposed to transfer all core land assets to Fesco under a long-term lease agreement coinciding with the life of the distribution licence.
Following the plan of privatisation, Fesco had sought a tariff increase of up to Rs4.91 per unit to guarantee a profit to the investors and encourage them to participate in its privatisation.
The National Electric Power Regulatory Authority (Nepra) had reserved its judgment while hearing a petition on tariff revisions for the next five years.
Fesco sought a tariff increase between Rs1 and Rs4.91 per unit for the first year and Rs0.58 per unit for the second year. For the next three years, it demanded an increase of between Rs0.06 and Rs0.17 per unit.
According to officials, the government desires to push up tariff for the next five years in an attempt to encourage investors to participate in the bidding process for the sale of Fesco. The five-year tariff would provide a guaranteed return to the investors.
During the hearing, Nepra chairman Tariq Sadozai had also raised questions over Fesco’s privatisation as the utility had made an extra payment of Rs13 billion to the Central Power Purchasing Agency (CPPA) and asked how it would be recovered after privatisation.
He noted that the Fesco management was collecting money from consumers on account of maintenance and operation cost, but the company had an obsolete system.
He suggested the government to put an end to the payment of subsidy once the company’s privatisation process is concluded.
Published in The Express Tribune, October 24th, 2015.
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