Govt Sells Genco Plants to Wah Industries – Business
Pakistan Sells Obsolete Power Plants for Rs38.255 Billion After Failed Auction
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Islamabad: In a significant move to streamline the power sector and alleviate fiscal pressures, Pakistan has successfully sold 61 obsolete power units from public sector generation companies (Gencos) for Rs38.255 billion. This sale follows the unsuccessful outcome of the government’s enterprising open auction plan, prompting a shift to a government-to-government (G2G) sale.
G2G Deal Secures Revenue Amidst Auction Setbacks
The Power Division confirmed that Wah Industries has acquired these non-functional plants thru three separate sale agreements with Northern Power Generation Company Ltd (NPGCL), Central Power Generation Company Ltd (CPGCL), and Jamshoro Power Company Ltd (JPCL). The agreements were finalized on Tuesday, Thursday, and Friday, respectively.
The final sale price of Rs38.255 billion marginally surpassed the reserve price of Rs38.224 billion, which was established under Wapda’s auction regulations to ensure G2G sales do not fall below a predetermined value. This transaction brings the total revenue generated from both auction phases to Rs46.73 billion. This figure includes the Rs9.053 billion earned from the March 18 auction of seven plants with a combined capacity of 1,016 megawatts (MW).
Key Details of the Sale
Total Revenue: Rs46.73 billion from both auction phases.
G2G Sale Value: Rs38.255 billion for 61 obsolete units.
Reserve Price: Rs38.224 billion.
First Auction Revenue: Rs9.053 billion for seven plants (1,016 MW).
A Power Division official revealed that the 415MW Guddu thermal power plant, considered to be in relatively better condition, was excluded from this sale. This decision was made due to significant interest from a leading US firm for its potential refurbishment, with expectations of a higher valuation.
The Power Division further elaborated that the State Bank of Pakistan had initially set a reserve price of Rs45.817 billion for the 61 outdated units. The concluded sale, however, fetched Rs46.73 billion. In the initial auction phase, 31 units were sold for Rs8.475 billion against a reserve price of Rs7.593 billion.
Financial and Operational Benefits of the Sale
The disposal of these units is anticipated to result in ample public savings,as the sold plants had been incurring significant annual operational costs amounting to billions of rupees. This strategic divestment is a key component of broader power sector reforms aimed at curbing ballooning capacity payments and addressing the persistent issue of circular debt.
Employee Reassignment and retention
As part of the transition, approximately 3,200 surplus employees from the decommissioned plants have been successfully transferred to distribution companies (Discos). Additionally, around 774 officers remain stationed at the sold sites.
Background: Reforms and Auction Challenges
The G2G deal was executed under the directives of the Prime Minister’s Task Force on Energy, lead by Lt Gen Zafar Iqbal. This action was taken after the second auction failed to attract sufficient interest and to expedite the realization of proceeds from the first round.
Last year, the government made the decision to shut down aging and redundant Genco plants as part of its reform agenda. An international bidding process was initiated to auction obsolete machinery and equipment, with the exclusion of land. The objective was to mitigate fiscal pressures arising from salaries, plant operations, maintenance, and capacity charges.
The Generation Holding Company Ltd (GHCL) was initially given a three-month timeframe by the Energy Task Force to complete the auction and transaction process. Though, the first auction round on March 18 failed to attract international bidders.The contractors who secured contracts were obligated to pay an 18% general sales tax and a 10% income tax to the Federal Board of Revenue (FBR) on the contract amount.
contractual terms stipulated payment either in full advance or in four installments over three months. These included 30% within seven days of contract signing (without equipment removal), 25% after 30 days, another 25% after the subsequent 30 days, and the remaining 20% in the final month. While early dismantling was permitted, equipment removal from the sites was contingent upon full payment. however, the full realization of proceeds from the deal has not yet been completed.