SLAMABAD: The government has decided to change the privatisation model for power companies into management contracts, leasing and equity injection through initial public offerings to avoid creation of private monopolies like the Karachi Electric Supply Company (KESC).

“Privatisation without competition is bound to create monopoly in private sector as happened in case of KESC. Its outright sale could not meet the stakeholders’ expectations, rather it has been a nightmare for customers,” said a senior water and power ministry official while justifying the need to review the privatisation approach.

The sale of KESC, he said, had achieved none of its objectives and consumer satisfaction was by no means better than in 2004 when such a huge enterprise was sold. The government has to provide even higher subsidies and special treatment to the KESC now than six years ago.

As a result of shoddy work relating to privatisation of power companies over the past two decades, the creation of a competitive electricity market has remained a dream for which the much publicised corporatisation and unbundling of Water and Power Development Authority (Wapda) had been taken in hand about 20 years ago.

Consumers as well as the national economy have not been able to get the promised benefits of power sector reforms despite the creation of a large organisation like the Pakistan Electric Power Company, separation of the hydel wing of Wapda from power companies, injection of billions of dollars of foreign loans and more than eight times’ increase in electricity tariffs.

The official said the government was working on at least 10 models for improving the state-owned power sector -– generation, transmission and distribution companies – keeping in view peculiarities of companies in different regions for ensuring their long-term solvency. He said the new approach had been necessitated by the fact that the Faisalabad Electric Supply Company that had been on the privatisation list for decades and was among the best performing companies in the region had not been able to attract a real investor because the margin for improvement was very limited.

The new models for larger companies would include issuance of initial public offerings of power companies with the involvement of international underwriters to attract local and foreign investment. The smaller companies or single project based entities would be leased out for 10 to 15 years, extendable by another 5 to 10 years.

Likewise, some of the companies would also be considered for public-private partnership or management contracts with specific targets and guarantees. The government will also design new financing contracts for improvement of cash flows of these companies and will include Lease-Build-Operate (LBO), Build-Transfer-Operate (BT or BTO), Build-Own-Operate-Transfer (BOT or BOOT), Buy-Build-Operate (BBO) and Buy-Own-Operate (BOO).

Practically speaking, the above-mentioned models would instil professional management and prepare power companies for subsequent privatisation after a decade or so, the official said.