Investors Set Conditions for Disco Privatisation

Potential investors interested in the proposed privatisation of Faisalabad Electric Supply Company (Fesco), Gujranwala Electric Power Company (Gepco) and Islamabad Electric Supply Company (Iesco) have called for a 7–10 year Multi-Year Tariff (MYT) framework, stronger regulatory protections and greater operational flexibility, saying these measures will be essential to attract competitive bids.

According to a Dawn report, the recommendations are based on an investor feedback report prepared for the Privatisation Commission after roadshows held in Pakistan, Turkiye, Saudi Arabia and China during June and July.

The report states that investor interest in the three electricity distribution companies remains strong, but uncertainty surrounding tariffs, regulations and market policies could affect the success of the privatisation process.

A major concern raised by investors was the tariff structure. They recommended extending the existing five-year Multi-Year Tariff (MYT) regime to seven to ten years, arguing that a longer tariff period is necessary to support long-term investment in electricity distribution infrastructure.

Investors also proposed gradually replacing the uniform tariff system with company-specific tariffs based on the performance and efficiency of individual distribution companies. They argued that the current system can disadvantage efficient Discos, while performance-based tariffs would encourage lower transmission and distribution losses and improve service quality.

Regulatory certainty was another key issue. International investors stressed that tariff agreements and contractual commitments made at the time of privatisation should remain protected from future changes by governments or court decisions. They also urged authorities to finalise capital investment plans, investment obligations and tariff details before inviting bids.

The report further highlighted concerns regarding the efficiency of the power regulator. Investors called for quicker tariff approvals, clearly defined regulatory powers and stronger accountability, while local investors also sought contractual limits on regulatory discretion.

Most participants expressed support for acquiring full ownership of the distribution companies, while some requested permission to purchase stakes in more than one Disco, provided appropriate safeguards are introduced to prevent excessive market concentration.

Several investors also suggested that the government retain a minority stake in Islamabad Electric Supply Company (Iesco) due to its significant number of government-sector consumers.

In addition, investors sought greater flexibility to purchase electricity from competitive suppliers and opposed transferring expensive legacy Independent Power Producer (IPP) obligations to privatised Discos as consumers increasingly shift towards lower-cost energy sources.

The report also identified new revenue opportunities through the commercial use of Disco assets, including telecom infrastructure, electric vehicle charging stations and smart metering services. However, investors emphasised the need for clear regulations governing these businesses and transparent revenue-sharing mechanisms.

Foreign investors also highlighted concerns over exchange rate volatility, particularly its impact on overseas borrowing for capital investment and the repatriation of dividends.

According to the report, investor interest in Fesco, Gepco and Iesco remains strong, but attracting competitive bids will depend on the government's ability to establish a stable, transparent and investor-friendly regulatory framework before the bidding process begins.