Investors Want to Be Paid in Dollars After Buying Power Plants in Pakistan
Prospective buyers of three local power distribution companies (DISCOs) have asked Pakistan to pay them in US Dollars, protection against future changes to their contracts and greater flexibility in purchasing electricity.
This comes as the government proceeds with the first phase of privatization covering Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO).
Around 12 investors, including four foreign parties, want to buy them.
The investors are seeking stronger guarantees that their agreements will not be reopened or renegotiated after privatization. They have also raised concerns about regulatory decisions, tariff adjustments, and the power regulator’s ability to maintain agreed terms.
Investors have called for stronger regulatory capacity, effective enforcement of service-level agreements and timely tariff decisions by the National Electric Power Regulatory Authority (NEPRA).
They are also concerned that future governments or court decisions could alter tariffs and other terms agreed.
To address these risks, the government’s financial adviser has proposed seeking political-risk guarantees from multilateral institutions and incorporating protections against contract reopening into the transaction documents.
Another major issue is electricity procurement. Potential buyers want greater freedom to purchase power competitively rather than being required to buy expensive electricity from certain independent power producers (IPPs).
The government is unlikely to fully accept this demand because it remains contractually obligated to purchase power from generation companies. Reducing those purchases could leave the government responsible for capacity payments to plants that are not operating.
Some potential bidders already own power-generation assets and have therefore sought licenses allowing them to both purchase and sell electricity.
Investors have also argued that the existing five-year tariff control period is too short to support major long-term investment. They are seeking a period of seven to 10 years.
Potential buyers also want greater clarity on investment returns, approval of investment plans and tariff determinations before submitting bids. They have additionally sought timely payment of subsidies meant for protected consumer categories.
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