Privatisation of Discos: A dream that will never come true

It is my considered view that the decision to expedite the process of privatization of Discos is a dream that will not materialise this time too. People have been hearing about it for over a decade and way back in the 1990s, too, I had predicted that these Discos will never be privatised. Even if privatised the sell-off will result in another national fiasco. This does not mean that I am against privatization of Discos or any other sector where the Government is in business. My conviction, and consequently prediction, stems from the fact that there is no point in talking about a transaction that in the present form is impractical. This impracticality arises from incomplete and incorrect ‘unbundling’ of the monopolistic behemoth called ‘Wapda’. Now, that there is no Wapda as an all-encompassing entity, in legal terms, however, those who know the complexion of the power sector will confirm that the ghost of Wapda still lurks as it is now divided into further inseparable parts, namely Wapda, CPPA, Pepco, Gencos and Discos. All these off-springs are non-homogenous creatures that cannot survive on their own. Their inter-dependence and the ultimate dependence of all these creatures on Government by way of guarantees and subsidies is such a complex issue that no positive outcome can be achieved unless certain decisions, in principle, as discussed below are taken. These decisions are so sensitive that our national security and political stability can be at risk if there is any dissention. We cannot leave these matters to be immaturely handled by media and the judiciary to intervene. Parliament with consensus of all provinces and stakeholders should decide one of the primary unresolved economic subjects of the country. These aspects are discussed in the following paragraphs:

In two of my earlier articles on the subject of energy in this newspaper I had stated that according to my research there will be an aggregate ‘subsidy’ to energy sector of around Rs 1,000 billion per annum for another five years. If this is a reality on the basis of economic forecasts then the primary problem in privatisation is to identify the entity or the group of entities that will receive this subsidy. Although financial analysts, accountants and consultants have ability to navigate this maze, however, in the present environment of judicial over-reach, overzealous and ill-equipped, accountability institutions and the record of Government of Pakistan in respect of such contracts and arrangements, serious or prospective investors will prefer to stay away from this mess. In such a situation the bidder will either be a party seeking to exploit the weakness of the government or the system or a person totally relying on government’s sovereign guarantees. If it is so then there is no point in undertaking the privatisation exercise. In order to fully understand this subject it is desirable and imperative to study the history of privatisation of the then Karachi Electric Supply Corporation (KESC). The entity’s mystery remains unresolved even after one and a half decades. Everybody is suffering and the major victims are the city of Karachi and its inhabitants. In my view the investor has not been treated properly. This requires an independent study.

The second issue with respect to privatization is the validity of financial statements of Discos and Gencos. In my earlier articles I had asserted that all Discos are totally dependent on Government of Pakistan for their financial viability. They cannot continue to operate if the government guarantees and subsidies are removed from their books. I had further asserted that all these Discos are not going concerns under the primary accounting standards. The so-called best Disco being FESCO has a profit for the year of Rs 6 billion with a subsidy of Rs 53 billion and guarantee for bad debts by Nepra, the regulator. These sham balance sheets are not products to be sold to any sensible investor. Only those investors will be interested who receive Government guarantees and return in US $ like the IPPs (Independent Power Producers).

In this situation, the interim arrangement, until final resolution is made for the issues raised in the following paragraphs and for better performance, private management with a fee as done in case of managing agents be instituted. In my view, the best recourse will be replication of the ‘Managing Agency’ system that was in vogue in Pakistan prior to 1970. In this particular manner the owner will be Government of Pakistan and the so-called investor will only be a managing agent whose fee will depend upon some key performance indicators (KPIs) like efficiency achieved. In short, there will be no privatization. The change will be appointment of a managing agent for running a Disco with a fee based on measurable performance. This will keep the bureaucracy at bay from management and technology of modern management can be introduced. This in my view is the only answer for interim period of another 10 years. Government of Pakistan is advised not to waste time and money on consultants and advisors on an exercise that is definitely destined to end in futility.

The reader will be interested in identifying the reasons for this pessimistic viewpoint. This is not a pessimistic viewpoint. This is the result of an incomplete exercise of ‘unbundling’ of Wapda. General Musharraf started the project with good intentions however like many other projects the policies were compromised and Pakistan ended up in a mess bigger than what it was at the beginning. In short, the primary policy issues for a layman are:

1. The present and future share of national power generation through hydro, thermal (then furnace oil, gas and coal) or other inputs. A plan for at least 25 years;

2. The manner of distribution of power generated through these three sources to different geographical locations and sectors. This is highly important as the cost of production is substantially varies from one case to another. A plan and an agreement for at least 25 years;

3. The time period when Discos will be allowed to acquire and sell power on market prices. The identification of the sources from where such power will be purchased. This also requires a commitment and a guarantee;

4. The development plan for the respective jurisdiction (where a Disco operates) and its alignment with the private sector. For example, one investor may like to keep the present state of affairs of say 8,000MW for the jurisdiction whereas the Government of Pakistan’s projection is for 10,000MW in that jurisdiction. This requires alignment of objectives of a public utility and commercial interest;

5. The role and control, if any, of Nepra on various matters and assurance with respect to intervention as to pricing, investment and licensing.

If there is a proper integrated understanding of these five primary issues then there will be a clear realization that by carrying out again on the useless exercise of privatization of Discos we are trying to serve half-cooked meal to the guests. Prime Minister Imran Khan is required to appreciate the fact that the objective of a government is not to tick-mark the boxes stipulated by certain institutions. Pakistan requires a constructive long-term strategy on the issues identified above. I genuinely feel that Discos should be privatised, but their sell-off must not give birth to an IPP-like fiasco where so-called foreign investors took advantage of our incompetence characterized by corruption. This mistake should not be repeated. The answer to the problem which has arisen in almost all the developing countries is that a National High Level Commission should be formed to decide the aforesaid five questions and the recommendations of that commission be made part of the Constitution. This is a subject of national importance. This matter should be taken up on priority basis. Pakistan needs long-term planning and development for economic targets.

Copyright Business Recorder, 2021