The most common myth against privatisation is loss of employment. This fear is largely unfounded. The example of privatisation in banking sector controverts those who make such claims. In 1997 when the restructuring, downsizing and privatisation picked up speed there were 105,000 employees working in the sector.
After privatisation was completed, the workforce had expanded to 114,000 indirect employment in form of outsourcing of services and contractual employment have created many more additional jobs. It is true that the pattern of employment has changed and more productive and skilled workers have been taken up at the expense of low skilled or unskilled workers. These unskilled workers now work for outsourcing services providers. But this is the essence of economic development ie the shift from low productivity to high productivity by skill up-gradation. The profits of the banks have risen since privatisation not only due to better management but because of this shift from low skill to high skill manpower.
The other fear is that workers will no longer be protected as the power to fire them is much easier under private ownership. The process of hiring and firing of employees in a public sector company is highly convoluted, complex and cumbersome. Those found guilty of infractions or negligence of duties or even corruption can only be dispensed with after a protracted process of disciplinary proceedings that sometimes take several years to complete. In the meanwhile, the employee continues to stay put in service and receives all the emoluments and perks.
In a rare case, a departmental inquiry comes up with a guilty verdict, the employee can appeal to the Federal Services Tribunal and if he is unsuccessful, then all the way to the Supreme Court. Why will any right minded boss choose to go through such an ordeal? Privatisation enables the managers to distinguish the hard working and productive workers from the lazy and incompetent. The former are rewarded for their performance while the latter are the target of firing. But this is the essence of an efficient economy. Unions can, of course, still act as the watchdogs to protect the genuine interest of workers even under private owners. The most powerful union in the US is the United Auto Workers despite the fact that all three big auto companies are privately-owned.
Next we come to the PTCL. The revolution in telecom sector has affected the lives of the majority of Pakistani citizens since the historic decision to break the monopoly of the state-owned PTCL, privatise it and open up the sector to the private sector. Had the PTCL remained a state monopoly with its control on the infrastructure and the backbone the private sector operators would not have come forward to participate in the auction for 2G spectrum, the sector would not have opened up for fierce competition, the penetration ratios would not be anywhere close to what we have achieved and the consumers would not have benefited in price, services and convenience as much as it has.
It is true that PTCL under new owner has not come up to our expectations as it has not paid the balance amount of $800 million that is outstanding for several years. But it must be conceded that unlike state owned enterprises they have quickly responded and adapted to the changed market conditions. They realised that the fixed line voice segment business has no future in light of the mobile telephony and shifted to the Data Services segment, wireless local loop, broad band, corporate services solutions, carrier services, and international telephony business.
PTCL with its spectrum, networks and infrastructure can do even better but had it remained a state owned company the changes we are observing in the business model by adopting innovative opportunities would not have been forthcoming. The decline in revenues earned by the PTCL prior to privatisation were in fact 'monopoly rents' because of the market power enjoyed by them. The efficiency and customer services of the state-owned PTCL can be gauged by the fact that getting a land line telephone connection before 2005 was an ordeal. Either you needed a political leader to intercede on your behalf or you had to pay a hefty bribe to the PTCL officials.
The KESC has a long way to go. But at least a direction is set. A competent and dedicated management team is in place. Shareholders are continuously monitoring and keeping a vigilant eye over their performance. Investment plans in generation, transmission and distribution are at various stages of execution some of them having been partially achieved. Systems and procedures are being put in place. Intelligent use is being made of technology to manage load distribution and peak demand allocations. Customer services units with their staff trained and retooled have been empowered to solve problems facing the complainants. Voluntary separation scheme, despite lingering difficulties for a prolonged period, is beginning to align manpower supply with the demand. Financial controls have been strengthened and recovery of dues had been stepped up. Theft and T&D losses, still high and in unacceptable range, are being vigorously tackled.
The citizens of Karachi would feel satisfied when they get uninterrupted supply of electricity at affordable rates. This would require efforts of fuel switching, innovative and creative solutions to minimise theft and T&D losses, greater efficiency in generation and addition of new capacity.
But this writer is sanguine that had KESC faced the kind of problems it had during the last few years as a public sector entity the heads of many Chief Executives would have rolled by now. The lack of continuity in the top leadership brings to halt the execution of the plans and strategy that yield results after a time lag. As the management team becomes demotivated and anxious about their own job security they spend most of their time and energies in lobbying the political leaders rather than doing the work they are assigned. A vicious cycle sets in. As the Chief Executive is unable to achieve the desired targets given to him by the Minister he is removed from the job. His removal creates further uncertainty among the managers who accelerate their efforts to save their jobs or jockey for top position. It would be interesting to see as to how many CEOs have served at DISCOs in the last three years.
Steel Mills is a typical example of what is wrong with public ownership. It has antiquated machinery, is highly overstaffed, is poorly managed with weak governance and almost no oversight and accountability. It suffers from huge under investment, leakages and discriminatory pricing that favours selected few at the cost of the taxpayers. Contracts are awarded on considerations other than lowest competitive bid. Frequent changes in key management positions, arbitrary and whimsical decision-making and discontinuity in policies make the matters worse.
How can one expect under these circumstances that it can be a source of profits to the government or a low cost supplier of raw materials to the industry? Newspaper reports based on Public Accounts Committee indicate that had the Mill been privatised in 2007, the tax payers would have saved Rs 100 billion in losses incurred and several hundred million dollars of foreign exchange by averting imports of steel. Capacity utilisation had plunged so low that it cannot meet the market demand and imports have to meet domestic demand.
There are many risks to privatisation which have to be managed and minimised by the government. Private ownership and efficient functioning of market mechanism require certain legal and regulatory safeguards. In the absence of these safeguards, private monopolies or oligopolies can surface, market distortions can accentuate and markets can be rigged for the benefit of the few. Strong legal and regulatory institutions with competent staff of unimpeachable integrity would be able to counter these evils forcefully and provide a level-playing field for all market participants. We have to strengthen these legal and regulatory institutions before privatisation takes place. The recent financial crisis in the US shows that exclusive reliance upon self-regulated markets and neglect of regulation are unwise and have proved catastrophic. Pakistan escaped the wrath of this gigantic crisis, because of the stringent regulatory framework that did not allow the private banks owners and managers to take excessive risk with depositors' money.
Public policy should also be geared at removing preferential treatment or granting of concessions or privileges to particular segment or group based on political loyalty, affiliation or similar considerations. The government has to create a level-playing field and act in an even handed manner. No firm-specific SROs should be issued to favour a particular enterprise at the expense of the other. Under these circumstances, private owners will earn true profits through competition and not earn rents and the justified grudge against the private sector and privatisation can be minimised. The collusion between the government officials and the political leaders and unscrupulous wheelers dealers among the private sector has brought bad name to privatisation in many countries including Pakistan. Any semblance of favouritism would wreck the whole privatisation process. Transparency will lead to success.
(Concluded)
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