ISLAMABAD: The government is considering political risk guarantees from multilateral institutions and measures to improve regulatory predictability as it seeks to attract investors to the privatisation of electricity distribution companies, according to a report on the sale process.
Dawn reported on Thursday, citing informed sources, that prospective bidders conducting due diligence on the first group of distribution companies had raised concerns about the reliability of contractual arrangements and the regulatory environment.
The report said the reopening of contracts with independent power producers and recent legal developments involving K-Electric had contributed to the perception of risk among local and foreign investors. These are concerns attributed to sources familiar with the process, rather than an official finding that the privatisation programme will fail.
Political risk guarantees are designed to address specified risks that commercial investors may be reluctant to bear on their own. Their usefulness depends on the precise terms, the institution providing cover and the events that would trigger a claim. No final guarantee agreement was confirmed in the reporting reviewed for this draft.
For potential buyers of distribution companies, regulatory predictability affects assumptions about revenue collection, investment obligations, tariff treatment and future financial performance. Uncertainty over those conditions can influence both the willingness to bid and the price an investor is prepared to offer.
The government has presented power-sector restructuring and privatisation as part of a wider effort to improve performance and reduce persistent financial pressures. Distribution companies are central to the process because they collect payments from consumers and operate the networks that deliver electricity.
However, private ownership alone would not settle the questions facing bidders. Investors would still need clarity on existing liabilities, service obligations, tariff rules and the enforcement of contractual commitments. The reporting indicates that officials are attempting to address those concerns while the due-diligence process continues.
Finance Minister Muhammad Aurangzeb has chaired discussions on the power-sector regulatory framework, according to the accompanying official meeting photograph and reporting. Any resulting policy or guarantee arrangement should be assessed against the formal documents once issued.
The immediate issue is whether the government’s proposed safeguards can give prospective investors sufficient confidence to proceed. There has been no verified announcement in the material reviewed that the first batch of distribution companies has been sold or that binding guarantees are in force.