The Cabinet Committee on Privatisation (CCoP) has directed the Power Division and Finance Division to develop an alternative mechanism to the existing Circular Debt Financing (CDF) arrangement before the privatisation of three power distribution companies, Faisalabad Electric Supply Company (FESCO), Gujranwala Electric Power Company (GEPCO) and Islamabad Electric Supply Company (IESCO). The directive was issued as the committee approved the transaction structure for the three Batch-I distribution companies. The proposed alternative is intended to prevent an increase in the Government of Pakistan’s equity position through loan repayments after the companies are privatised. The matter is part of the restructuring process being undertaken before the companies are offered to pre-qualified bidders.
Under the restructuring plan approved by the CCoP, retirement benefits of employees who have already retired from the three companies will be separated from the DISCOs and transferred to a single Special Purpose Vehicle (SPV) owned by the Government of Pakistan. The companies will also enter into long-term lease-back arrangements for their land, with the terms to be negotiated with pre-qualified bidders. The costs associated with these leases will continue to be recovered through electricity tariffs. The restructuring is designed to separate certain liabilities and assets from the companies before the privatisation process moves ahead.
The approved mechanism also provides for the settlement of verified receivables against payables. Any future liquidity injections made by the Finance Division will be adjusted against verified government receivables and payables owed to the Central Power Purchasing Agency-Guarantee (CPPA-G). The sequence for these adjustments will be determined by the Power Division and the Power Planning and Monitoring Company. Any surplus liquidity injected by the Finance Division after these adjustments will be treated as an advance subsidy payment. These arrangements are intended to address outstanding financial positions and establish a clearer balance sheet structure for the companies ahead of their proposed privatisation.
The CCoP has also approved specific measures concerning Development Support Loan (DSL) re-lent loans. The overdue portion of these loans, including accrued mark-up, will be written off, while the portion that is not yet due will remain on the balance sheets of the respective DISCOs. Mark-up on the non-due portion will be recovered through electricity tariffs. Reconciled receivables from associated undertakings, including Water and Power Development Authority (WAPDA) and generation companies, will be settled against CPPA-G payables, while receivables that cannot be verified will be written off.
The restructuring will further address tax-related and government receivables. Outstanding sales tax receivables from the Government of Punjab, along with electricity duty payables to the provincial government, will be carved out into the government-owned SPV. The CCoP has also decided that government receivables that are not verified by the Power Division will be written off. In the case of IESCO, long-outstanding tax receivables from the Federal Board of Revenue will also be written off, with the company required to withdraw the legal cases associated with those claims.
The committee has approved additional measures related to the capital structure and outstanding obligations of the three DISCOs. Deposits received for shares will be converted into share capital in accordance with the Companies Act, 2017. IESCO’s payables to CPPA-G that arise from potential delays in receiving subsidy payments for Azad Jammu and Kashmir may be deferred for a period of 15 to 20 years without interest. The Finance Division has prepared draft balance sheets showing the financial position of FESCO, GEPCO and IESCO before and after restructuring, based on their audited financial statements for the period ended March 31, 2026.
For FESCO, total assets are projected to decline from Rs408.31 billion before restructuring to Rs285.20 billion after restructuring, while liabilities are expected to fall from Rs320.39 billion to Rs222.30 billion. The company’s equity is projected to decrease from Rs87.92 billion to Rs62.87 billion. GEPCO’s total assets are expected to decline from Rs335 billion to Rs212.79 billion, while liabilities would fall from Rs258.90 billion to Rs166.10 billion. Its equity is projected to decrease from Rs76.10 billion to Rs46.69 billion following the restructuring.
IESCO shows a different position in the draft restructuring balance sheet. Its total assets are projected to decline from Rs515.09 billion to Rs368.14 billion, while liabilities are expected to decrease from Rs426.50 billion to Rs257.39 billion. Despite the reduction in assets and liabilities, IESCO’s equity is projected to increase from Rs88.59 billion to Rs110.74 billion. The figures form part of the financial restructuring plan prepared for the three distribution companies before their proposed privatisation.
The three DISCOs have also been directed to increase their authorised share capital. FESCO’s authorised share capital will be increased to Rs100 billion, GEPCO’s to Rs75 billion and IESCO’s to Rs125 billion. The CCoP has directed the Power Division and Finance Division to finalise an alternative to the Circular Debt Financing arrangement in consultation with the Privatisation Commission. Until that mechanism is finalised, the three companies will not record Circular Debt Financing allocations on their balance sheets.
In addition, FESCO, GEPCO and IESCO have been restricted from taking any decision or undertaking any action that could materially affect their financial or commercial position without prior approval from the Privatisation Commission. The restriction will remain relevant as the companies move through the restructuring and privatisation process. The CCoP’s decision places the development of a replacement for the Circular Debt Financing mechanism among the key steps to be completed before the transaction proceeds further.
Follow the PakBanker Whatsapp Channel for updates across Pakistan’s banking ecosystem.