Discos: the middle path?

The government will neither privatise nor will it sell out the shares or its stake in power distribution companies (Discos). Instead, it will hand over the management of Discos to the private sector and will also outsource the high loss feeders to the private sector. According to media reports, “this [government’s decision] will make Discos efficient by scaling down losses and increasing the recovery of billed electricity to consumers to make the power sector sustainable.”

This decision is reported to have been made last week by the special assistant to the Prime Minister (SAPM) on Power and Petroleum Tabish Gauhar. On the same note, he aired his concerns on issues confronting the country on account of power sector caught in a trap of massive payments because of setting up of unplanned power plants, the circular debt which has ballooned in the last two and half years and capacity payments causing increase in tariff. This has necessitated giving of undertaking to the IMF to make power sector sustainable - meaning more surges in tariff in years to come to cope with losses. Tabish also expressed the fear that NAB has gripped bureaucracy resulting in zero progress on implementation of revised contracts signed with 47 IPPs to ensure discounted tariff of Rs836 billion in next 20 years. He stated that, in the last two and half years, the power tariff has surged by 40 percent and if meaningful and timely measures are not rolled out to reduce losses, improving recovery and introducing efficiencies in NTDC, NPPC and transmission and distribution system, the circular debt will soar to Rs4500 billion by 2023. The increase in tariff by Rs4.50 per unit would then be inevitable, keeping in view the IMF restrictions on subsidies.

Prime Minister Imran Khan is reported to have stated that ‘power sector is one issue which gives me sleepless nights’ and rightly so. The industrialist, the farmer, the trader and the domestic consumers of the country are in the same state of mind. The electricity tariffs are unbearable.

The policy to hand over the management of Discos to the private sector, as against privatisation, may usher in professional management and competence at the top level and will at best bring around management change and improvement. Unfortunately, however, it is no cure to the ills that plague the sector. An operation and management company by definition is a service provider which delivers as per the given mandate at a fee and performance-based incentives. They are not strategic stakeholders and are insulated from financial stakes, liabilities or risk in the sustainability of the company. This makes all the difference.

The issues of Discos are deeply complex, numerous and beyond just the management change; these are political, financial and legal as well. The sector needs massive investment in its infrastructure, hard and software systems and human development. The government is in no position to invest. The private sector, however, can bring the money on the table.

The incumbent government missed the timelines of immediate privatisation of Discos as soon as it assumed office. Lack of vision, covert and open resistance by vested interests and lack of will and competence on the part of managers, inducted by the government to fix the sector, did not make this happen. Instead some cosmetic measures were taken to fix the sector, with the result that the state of financials today is worse than what it inherited in 2018.

It was in early 90s that the Word Bank (WB) sponsored the unbundling of Wapda, leaving it with only hydropower, dams and irrigation systems, whereas, thermal power generation and distribution split into region based autonomous companies under the commitment to the WB that these would be first truly corporatised and then privatised. This never happened. Compromised company boards and managements, influenced by political leadership and bureaucracy, were put in place. This grossly flawed approach to the challenge therefore culminated in the present pathetic state of affairs.

To set the power sector right, the government needs to go back to the plan rolled out in the 1990s by the World Bank. Privatisation of Discos must be preceded by setting up of professional boards and appointment of professional management. Anything short of it will never work.

(The writer is a former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2021