THE power sector has long been facing grave issues and complications. Poor management, outmoded infrastructure, and frequently rising electricity demand have led to frequent power breakdowns, growing circular debt and huge govern-ment subsidies. Privatisation is often considered and discussed as the answer to these challenges.
Those who support this as a solution believe that it can bring more proficiency and effectiveness, but critics presage it may cause new problems.
One of the major issues faced by the power sector is circular debt. This occurs because of overdue payments to private power companies, maladministration, and poor performance of distribution companies (Discos). There is 17 per cent transmission and distribution loss, which is much higher compared to countries, like South Korea, the United States and China where such losses account for 3.6pc, 5pc and 8pc, respectively.
Moreover, there are factors like under-reporting of usage, electricity theft and outdated transmission lines that further add to the problem. A large number of Discos are economically weak and cannot upgrade their systems, or provide conti- nuous electricity, leaving the government to cover their losses.
The supporters of privatisation claim that the involvement of private companies could help decrease losses and would upgrade services. The result of privati-
sation in other countries has shown mixed outcomes. In the United Kingdom, privatisation assisted in improving effectiveness and satisfactory delivery of service. Chile’s modernisation of the power sector decreased the losses.
Nevertheless, the experience of privatisation in some countries, like India and Nigeria, has been unsatisfactory because of poor regulations and inadequate improvements in service.
Privatisation of Discos in Pakistan provokes many queries. Will the private companies overtake the whole system, together with wires and electricity poles? If not, how will competition work? What about the electricity prices? Will they continue to be the same across the country, or will they enhance for some user categories?
To make a successful privatisation plan, Pakistan has to upgrade its regulatory system. Strong rules and autonomous regulations are the most important elem-ents to make privatisation work.
However, regulation system in Pakistan is poor and is highly influenced by politics. Successful privatisation in other countries frequently required diminishing subsidies, which elevated prices for domestic and agricultural customers. This can cause a public backlash in our case.
For privatisation in Pakistan to work, it is necessary to sort out the issues in the present system first. Issues, such as, delayed billing, outmoded infrastructure and electricity theft, need to be resolved. In parallel, privatisation of Discos could lead to other problems, like job cuts and high electricity bills for families with limited income.
Our experience with independent power producers (IPPs) in the 1990s should teach us some due lessons. Involving private companies did enhance the electricity generation, but the high charges of agreements and dependence on imported fuel provided financial challenges.
Truly, such outcome could occur if privatisation is done without addressing the underlying problems.
Mehar Angaiz
Islamabad
Published in Dawn, February 3rd, 2025
