ISLAMABAD: The privatisation of power distribution companies could foster competition in a sector that is currently dominated by government intervention, where state-owned enterprises (SOEs) control most of the distribution segment.

The Competition Commission of Pakistan (CCP) is of the view that privatising these companies could break this monopoly, paving the way for a competitive market where consumers would have the option to compare services from multiple providers.

The government has geared up the privatisation of three DISCOs namely, Islamabad Electric Supply Company (Iesco), Faisalabad Electric Supply Company (Fesco), and Gujranwala Electric Power Company (Gepco) under the phase-I of privatisation.

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However, stakeholders have expressed concerns about the impact of privatisation on market competition.

Responding to different queries, the CCP spokesperson told Business Recorder that privatisation itself is not inherently anti-competitive as it leads to innovation, efficiency and resource allocation. The privatisation of distribution companies and opening up of the sale business at the DISCOs will help to end the single control and create a competitive market where consumers can compare services fromdifferent sellers.

However, the spokesperson said, we should keep in view that the electricity distribution network (wire business) is a natural monopoly, with its value increasing with the number of connections.

Duplication of distribution networks could lead to unnecessary infrastructure, higher costs, and reliability issues. Whereas, the control of SOEs in distribution segment is restricting competition, limiting innovation, and leading to inefficiencies such as high circular debt, significant transmission and distribution losses, regulatory inconsistencies, and aging infrastructure.

According to details, the CPPA-G is the sole buyer of electricity from power producers and sells it to DISCOs, which is monopolistic in nature. Before 2018, the scope of electricity distribution encompassed both the physical infrastructure (wire business) and the sale of electricity to end-consumers. However, with the introduction of the NEPRA (Amendment) Act, 2018, the sale of electricity was separated from the distribution function. Under the amended Act, a distinct “Electric Power Supply Licence” is now required for the sale of electricity, as stipulated in Section 23E of the Act. This amendment effectively decouples the distribution of electricity from its sale, providing a clear regulatory framework for these two essential aspects of the power sector.

Moreover, distribution of electricity (wire business) is typically treated as a natural monopoly, the official said.

Allowing only one company in a specific territory to handle the distribution network avoids unnecessary duplication of infrastructure, which would be costly and inefficient. However, at a later stage, the commission may evaluate the potential for monopolies and encourage unbundling of larger DISCOs into smaller, regionally distinct entities to prevent concentration of market power.

The CCP is proactively coordinating and cooperating with the Privatization Commission to facilitate the privatisation process. To balance the need for competition with the public interest objectives of privatisation, the CCP may grant temporary exemptions to ensure the smooth flow of privatisation, with the understanding that full compliance with competition laws will be required after a certain period of time.

It is necessary to clearly distinct the wire business (distribution network) and the sale business (retail supply). During and after privatisation, more retail vendors must be encouraged to enter the market.

To enable fair access for all new entrants, non-discriminatory access to distribution networks is required, allowing numerous suppliers to use the infrastructure to reach customers, the CCP source added.

Copyright Business Recorder, 2024