K-Electric (KE) is once again up for sale. This time the potential bidder to buy KE majority shares is Shanghai Electric Power (SEP), which was seen moving in and out of the bid in the last two year. SEP appears far more stronger in political and financial terms than its predecessor the Abraaj group. The consumers of Karachi are apprehensive that the tariff escalation trend may get steeper with the change. This may hold true as a market which offers monopoly, weak regulators and government concessions is devoid of any mechanism for checks and balances.
Under the current scenario, there are three likely options to manage the interests of electricity consumers of Karachi.
The government itself can buy back the majority shares and once again operate it as a Public Sector Enterprise (PSE) manned by a professional management.
It may de-regulate the electricity market of Karachi with multiple electricity suppliers out to compete on price and quality of service.
SEP is going to replace Abraaj as foreseen, but it must be allowed to operate under a regime of independent and strong regulators. There is therefore a need to strike a delicate balance between the interests of consumers and the power supplier and keep a check on monopoly trend.
Considering the performance of the existing loss-making utilities in the public sector riddled with incompetence, poor governance, political influences, the first option, even with a professional management put in place, is not workable. The second option is the way forward; but it's a long-term option. Inevitably, in all deregulated power markets where business dynamics of supply and demand, competitive price and service are at play, tariffs have reduced and services improved.
Lately, government's plan to create a competitive environment in country's power sector is much in the news. A few days ago, the power regulator, Nepra, stated that the Competitive Trading Bilateral Contract Market (CTBCM) would be a game-changer for the power industry of Pakistan. For this purpose, a webinar on CTBCM was organized, which was reported to be participated by a large number of renowned national and international experts and stakeholders of electric power. The Nepra Chairman is reported to have approved a detailed design and implementation plan for CTBCM meant to create a competitive environment in the power sector for the benefit of the country. This could be a good initiative in a mature and stable power market, but Pakistan's power sector is not yet ready to embrace it. It is, in fact, riddled with chronic financial, management and competence challenges culminating into circular debt - all of which being out of control of the regulator's and state's power managers. It will take years of highly dedicated efforts to move the sector into a state where it could be subject to deregulated market challenges.
The realistic option is the third or last option - move on with SEP under the surveillance of a competent regulator. But Nepra, which is based in Islamabad, is too far away from Karachi to comprehend the complex private sector dynamics of port city's power utility with generation and distribution grouped as one entity. There should be a separate and independent regulator based in Karachi which must function with active engagement of the representatives from the private sector. This may not be an ideal solution to keep a check on monopoly trend but a realistic one in the given circumstances.
(The writer is former President Overseas Investors Chambers of Commerce and Industry)
Copyright Business Recorder, 2020
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
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