World Bank Vows Comprehensive Template to Boost Pakistan’s Power Reform

World Bank while pledging its support for Pakistan’s ongoing power sector reform efforts, promised to deliver a comprehensive privatization template to Islamabad next week, with the aim of expediting the privatization process for the Power Distribution Companies (DISCOs).

Simon Stolp, South Asia Practice Manager for Energy at the World Bank, and his team met with Caretaker Federal Minister of Privatisation, Fawad Hasan Fawad on Wednesday, to discuss the government’s privatization agenda, focusing on the performance of DISCOs within Pakistan’s power sector. Stolp reiterated the World Bank’s commitment to aiding various aspects of this long-term transaction, underscoring the importance of a well-structured template for DISCOs.

The World Bank’s team of energy specialists has committed to presenting a template outlining the most suitable mode of privatization for DISCOs to Ministers of Energy and Privatisation within a week. This template will be refined with expert opinions to support ongoing power sector reform efforts.

Minister Fawad Hasan Fawad explained the government’s privatization agenda, with a view to supporting struggling DISCOs and reducing the government’s financial burden through private sector investments. He stressed the need for a two-step strategy for DISCO privatization, potentially involving a concessional model of management control followed by divestment.

Discussions with the International Finance Corporation (IFC) about a concession model for DISCOs were highlighted during the meeting. The Minister disclosed ongoing talks with the Minister of Energy to create a structured timeline for DISCO divestment, beginning with concession agreements.

Both ministers agreed that this approach represents the most suitable path forward. Minister Fawad Hasan Fawad also noted the current public sentiment favoring privatization as a means to alleviate the financial burden on the national exchequer.

This meeting signifies a united effort to reform and privatize Pakistan’s power sector, with the primary goal of addressing financial challenges faced by DISCOs while promoting economic growth and long-term sustainability. The commitment to this endeavor is strong, with careful consideration given to every aspect to ensure its success.

The comprehensive privatization template is expected to play a pivotal role in facilitating the privatization process, ensuring it adheres to industry best practices and meets the specific needs of Pakistan’s energy sector. The World Bank’s team of energy experts will collaborate with industry professionals to integrate their insights into the template, enhancing its quality and effectiveness.

Pakistan’s Energy Sector Debt at $17.5bn

Notably, Pakistan’s Energy sector circular debt has reached around $17.5 billion, posing a significant economic challenge. The major share of this debt comes from the inefficiencies and mismanagement of the electricity distribution companies (DISCOs). 

To address this, the government is considering private sector involvement through long-term concession agreements of up to 25 years for state-owned power generation and distribution companies. The power sector’s circular debt stands at over $7.9 billion, with a similar issue in the gas sector, exceeding $9.59 billion, due to increased reliance on imported gas and losses associated with liquefied natural gas (LNG) sales. The gas sector alone records losses of over $3.4 million per day, amounting to $1.2 billion annually. Discussions with the World Bank’s International Finance Corporation (IFC) are ongoing.