CCoP Approves Restructuring Of Three DISCOs

The Cabinet Committee on Privatisation (CCoP) has instructed the Power Division and Finance Division to develop an alternative to the Circular Debt Financing (CDF) mechanism to prevent repayments of loans after privatisation from increasing the government’s equity in three power distribution companies (DISCOs), according to a Business Recorder report.

The directive was issued alongside approval of the transaction structure for Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO).

Under the approved restructuring framework, retirement benefits of employees who have already retired will be separated and transferred into a single Special Purpose Vehicle (SPV) owned by the Government of Pakistan. The three companies will also enter long-term lease-back agreements for their land, with terms to be negotiated with successful pre-qualified bidders. Lease expenses will continue to be recovered through electricity tariffs.

Verified receivables will be adjusted against corresponding payables, while future liquidity provided by the Finance Division will be reconciled against verified government receivables and amounts owed to the Central Power Purchasing Agency-Guarantee (CPPA-G), according to a sequence determined by the Power Division and PPMC.

Any excess liquidity provided by the Finance Division will be classified as an advance subsidy payment.

The overdue component of Development Support Loan (DSL) re-lent loans, including accumulated mark-up, will be written off. The portion that has not yet fallen due will remain on the DISCOs’ balance sheets, with related mark-up recovered through tariffs.

Reconciled receivables from associated entities, including WAPDA and GENCOs, will be offset against CPPA-G payables, while receivables that cannot be verified will be written off.

Outstanding GST receivables from the Government of Punjab and electricity duty liabilities payable to the provincial government will also be transferred to the government-owned SPV.

The CCoP further decided that government receivables not verified by the Power Division would be written off. IESCO’s long-pending tax receivables from the Federal Board of Revenue will also be written off, with the company required to withdraw related court cases.

Share deposits will be converted into share capital in accordance with the Companies Act, 2017.

IESCO’s CPPA-G liabilities linked to possible delays in subsidy payments for Azad Jammu and Kashmir may be deferred for 15 to 20 years without interest.

Draft balance sheets prepared by the Finance Division show significant restructuring of the three DISCOs’ financial positions. FESCO’s assets are projected to decline from Rs408.31bn to Rs285.20bn, while liabilities fall from Rs320.39bn to Rs222.30bn and equity from Rs87.92bn to Rs62.87bn.

GEPCO’s assets are expected to decrease from Rs335bn to Rs212.79bn, liabilities from Rs258.90bn to Rs166.10bn and equity from Rs76.10bn to Rs46.69bn.

IESCO’s assets would fall from Rs515.09bn to Rs368.14bn, while liabilities decline from Rs426.50bn to Rs257.39bn. Its equity, however, is projected to rise from Rs88.59bn to Rs110.74bn.

The three DISCOs have also been directed to raise authorised share capital to Rs100bn for FESCO, Rs75bn for GEPCO and Rs125bn for IESCO.

The CCoP ordered the alternative to CDF to be finalised in consultation with the Privatisation Commission. Until then, the companies will not recognise CDF allocations on their balance sheets.

The DISCOs have also been prohibited from taking decisions that could materially alter their financial or commercial position without prior approval from the Privatisation Commission.