EDITORIAL: The new government is inclined towards provincialization of power distribution companies (Discos) whereas last month SIFC (Special Investment Facilitation Council) desired to hand over two Discos to the private sector.
In principle, the power sector distribution companies, and generally state-owned companies, should be put into the hands of the private sector. However, there is no evidence that provincial governments will be any better than the federal government insofar as the management or administration of these companies is concerned.
Within Discos, the shining example is of KE’s privatisation where the consumers of Karachi are the beneficiaries due to entity’s sell-off. Arguably, the private management has brought efficiency to the company and improved the reliability of the power supply in Karachi and the overall costumer experience is much better than the consumers of any other Disco in the country. However, it’s not a good deal for shareholders, as they have not received any return on their investment. It is not a win-win situation, and one needs to investigate why shareholders are worse off.
One major reason is that there are central power contracts and central dispatches. And the contracts are lopsided, which are making the power sector unsustainable. The government and overall sector have to live with it till these contracts expire, and eventually the power dispatches and distribution would constitute a localised affair.
The decisions today should consider the deregulation of the sector in future. However, till such time that this happens, transferring management of Discos from the present centralised control from Islamabad to the provinces may be a better arrangement from the point of view of accountability of Disco managements but would do little to resolve the basic flaw in the model of lopsided power purchase arrangements, uniform power tariff throughout the country and cross subsidisation of domestic tariff through commercial and industrial tariffs.
At present, there is no incentive for inefficient and mismanaged Discos to improve their performance as their inefficiencies and losses are to be shared with the better performing Discos, given the tariffs are uniform in the sector. With provincial control the service delivery of Disco would be in the very province that controls and the fallout of bad performance would be faced by the Disco managements on the ground.
The government should start with deregulation of the sector and move away from uniform tariffs and make Discos partially responsible for their losses by swaying away from cross subsidisation. For example, industries are mainly in Sindh and Punjab, whereas the other two provinces are dominated by domestic consumers and recovery is low within. The government should do away with the burden of KP’s and Balochistan’s inefficient consumers on good paying consumers in Punjab and Sindh.
The inefficient Discos should either increase the tariff within their respective jurisdictions to absorb the losses or let the province take the subsidy burden. And that would compel each province to improve the governance within its Discos – and nothing other than privatisation can do it better.
Copyright Business Recorder, 2024
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