CCP for sell-off of Discos or exploring PPPs

ISLAMABAD: The Competition Commission of Pakistan (CCP) has recommended privatization of existing power distribution companies (DISCOs) or exploring public-private partnerships (PPPs).

According to the CCP’s report, “State of Competition in the Key Markets in Pakistan: Power Sector”, the DISCOs have been a significant concern for successive governments, facing issues such as high distribution losses, revenue leakages, low bill recovery rates, widespread electricity theft, and supply constraints.

To address these challenges, privatization of existing DISCOs or exploring public-private partnerships (PPPs) is recommended. The relevant regulatory framework is now open for DISCOs as exclusivity clause has been removed in the amended NEPRA Act.

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“Full privatization of the existing DISCOs may be carried out or the DISCOs may be operated under the public-private partnerships to address high distribution losses and to open the market”, CCP recommended.

Breaking up the current DISCOs into smaller units and dividing their territories into more manageable regions would increase the number of players in the distribution sector, localized management, improvements and competition.

The CCP said that privatization in the power sector has been a part of the world trend, which placed greater reliance on market forces and less dependence on government in the allocation of resources.

The main drivers for this reform were: a) the underperformance of state-run electricity utilities, marked by high costs, limited access to electricity, and unreliable supply;

b) the incapacity of the state sector to finance essential investments and maintenance;

c) the necessity to eliminate subsidies, reallocating resources for other public expenditures; and d) the aim to generate immediate revenue for the government by selling assets from the sector.

The CCP has also observed that the high rates of electricity theft and non-payment of bills by consumers exacerbate financial difficulties for the distribution companies.

According to the CCP’s report, the consumers’ behaviour plays an important role in shaping competition in the markets. However, in the case of Pakistan’s power sector, it contributes negatively to the competition.

The report said that the institutional inertia and resistance to adopting new technologies and practices has slowed down modernization and efficiency improvements. Poor governance, lack of accountability, and corruption within some state-owned utilities companies has led to mismanagement and inefficiencies. The poor service quality often results in customer dissatisfaction, protests, and attacks on grid stations, which discourage domestic and international investment, thus limiting competition.

It has been observed that the regulatory reforms in the power sector have remained a trend world over, Pakistan being no exception. However, Pakistan could not achieve the desired benefits like other countries. The main reason being the lack of competition and a failure to provide necessary space to the private sector to participate in various market segments.

The sector is marred with numerous issues that limit market contestability. The barriers perpetuate lack of competition and often reinforce the factors that distort competition. These barriers restrict new competitors from entering the market, and at the same time protect the interests of the incumbent players. These barriers are:

(a) structural/natural barriers,

(b) regulatory barriers, and

(c) barriers resulting from the anti-competitive conduct of the market players, CCP report added.

Copyright Business Recorder, 2024