EDITORIAL: The Privatisation Commission held a meeting under the chairmanship of Federal Ministers for Privatisation and Energy, Aleem Khan and Sardar Awais Leghari, focused on expediting the privatisation process of distribution companies (Discos).
This overarching focus was acknowledged by previous civilian and military dictator Musharraf’s administrations in public statements as well as in Letters of Intent (LoIs) submitted to the International Monetary Fund (IMF) as a condition for securing a programme loan, though the process was invariably postponed due to litigation and/or workers’ organised resistance.
It is important to note that privatisation, touted as the ultimate solution of sectoral inefficiencies, continues to resonate with the staff of multilaterals - a policy approved by their boards - which is also reflected in the recent report uploaded by the Asian Development Bank (ADB) titled “Pakistan National Urban Assessment.”
The chicken-and-egg conundrum exists in the inordinate focus on privatising Discos by ideologically distinct Pakistani administrations as it is unclear which rationale predominates: whether as a perennial borrower of the IMF (Pakistan is currently seeking the twenty-fifth programme loan) privatisation is considered as the only option to avert the looming threat of default, or whether the select economic managers for the past two decades are genuinely convinced that this is the only way forward, a policy implementation that will additionally generate resources for the budget, a stance not based on an empirical study of the outcome of past sell-off deals as has happened in other countries.
The ADB report rightly argues that “the country’s power companies are in poor health, with circular debt and inadequate tariffs among the key causes.
The Finance Division, as did his predecessors, acknowledges circular debt as a problem. It has calculated this debt at 3.8% of Pakistan’s GDP and 5.6% of government debt as of March 2022. If left unaddressed, it could balloon to 4 trillion rupees by FY2025, with further crippling effects on the power sector, economy, and household activities.” However, the report claims that “only the privatised K-Electric is financially sustainable. The company used to suffer significant losses but recovered after privatisation and has since operated from its revenue collections.
Despite considerable resistance, it has succeeded in metering its expansive 6,500 kms service area, which goes beyond Karachi to five districts in Sindh and Balochistan, reducing electricity theft and a corresponding loss in income. Through load-shedding, it has controlled losses from illegal connections that still exist in some areas.”
This conclusion fails to take account of four extremely disturbing well- known factors: (i) K-Electric continues to receive electricity from the national grid, estimated at 1400MW after power regulator Nepra’s approval this year to supply an additional 300MW from the national grid, which the utility company acknowledged would save 50 billion rupees; (ii) Secretary Power stated during a recent National Assembly Standing Committee meeting that K-Electric is generating expensive electricity mainly through thermal power; (iii) the tariff differential subsidy (TDS) budgeted for K-Electric in the current year is 174 billion rupees while the TDS budgeted for the 10 Discos, not including Azad Jammu and Kashmir, is 276 billion rupees, or K-Electric alone receives 63 percent of what is being received by the other Discos combined because of increased consumption of power within its licence area, i.e., Karachi, which is the largest metropolis and commercial capital of the country.
TDS is a product of the uniform tariff regime throughout the country and the obvious question is if TDS is so much high should not the first reform step focus on ending the TDS before privatising other Discos for, surely, if privatisation implies large subsidies at the taxpayers’ expense then why privatise; and (iv) for privatisation to thrive there must be competition.
All Discos operate in monopoly conditions except for K-Electric that now operates under a non-exclusive licence but remains so sole supplier of power.
Therefore, while it is correct that the power sector is fraught with issues mainly sourced to the contracts signed with the Independent Power Producers in 2015, which one would hope will be taken into consideration when supporting an increase in renewable energy; however, blindly supporting privatisation without taking account of existing flawed policies, will be a recipe for further disaster.
Copyright Business Recorder, 2024