Haroon Assad
As Pakistan grapples with economic instability and escalating electricity prices, the clamor for the immediate privatization of government-owned electricity distribution companies (DISCOs) has grown louder. Proponents argue that privatization holds the key to curbing widespread electricity theft, operational inefficiencies, and financial losses. While these concerns are certainly valid, there is a critical aspect that often goes unnoticed – the vital role of deregulation. It is crucial to recognize that privatization without accompanying deregulation can potentially convert a public sector monopoly into an even more perilous private sector monopoly, with grave consequences for consumers and the economy.
Without a robust deregulation framework, the concept of privatization, which promises enhanced efficiency and reduced costs in theory, essentially shifts the monopoly from the public sector to the private domain. This can be more detrimental, since private monopolies often prioritize profit maximization with little consideration for service quality or consumer welfare. The potential consequences of this shift, such as increased prices, reduced service quality, and limited consumer choice, underscore the urgency of implementing a comprehensive deregulation framework before proceeding with privatization.
Deregulation entails the removal of government-imposed controls and limitations to foster a free and competitive market. In the context of Pakistan’s energy sector, this would involve allowing multiple private entities to enter the market, fostering competition, encouraging innovation, and ultimately benefiting consumers through improved services, lower prices, and increased choice. For the economy, deregulation can lead to increased investment, job creation, and economic growth. These potential benefits for consumers and the economy underscore the importance of deregulation in the energy sector.
In a scenario where new private players are not permitted to enter the market, a privatized monopoly lacks economic incentives to enhance efficiency. A private entity bound by governmental regulations faces limitations in implementing new technologies or innovations. For instance, if a privatized DISCO remains entwined with governmental entities through contracts, the system effectively retains its monopolistic nature, constraining the potential for technological advancements and operational efficiencies.
A privatized distributor, lacking the legal and enforcement capabilities for bill collection, will continue to seek government subsidies, akin to the case of K-Electric. This perpetuates reliance on governmental support, nullifying the potential benefits of privatization. Several countries have achieved successful deregulation of their energy sectors, resulting in enhanced efficiency, reduced prices, and elevated service quality. These examples offer valuable insights for Pakistan.
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A Compelling Model: India’s Successful Deregulation in the Electricity Sector
India’s 2003 Electricity Act aimed to revamp the power sector by promoting competition, safeguarding consumer interests, and ensuring a universal electricity supply. The act facilitated open access to transmission and distribution, allowing private players to enter the market. Notably, India’s deregulation led to increased competition among power producers and suppliers, substantial improvements in efficiency, lower electricity prices, enhanced quality and reliability of supply, and the ability for consumers to choose their electricity suppliers. Furthermore, the regulatory reforms attracted significant private investment in the power sector, resulting in the development of new power plants, transmission lines, and distribution networks. These outcomes, such as a 20% reduction in electricity prices and a significant increase in the number of consumers with access to electricity, showcased the effectiveness of deregulation in promoting a customer-centric approach among service providers and fostering innovation.
In the early 1990s, Pakistan initiated the unbundling of the Water and Power Development Authority (WAPDA) and endeavoured to corporatize these entities as a precursor to privatization. However, progress has been limited, with the partial divestment of government shares from the Karachi Electric Supply Company being the primary achievement. The absence of a comprehensive deregulation framework has stymied further advancements.
To avert the perils of privatization without deregulation, the National Electric Power Regulatory Authority (NEPRA) must urgently concentrate on cultivating a conducive environment for deregulation. This involves implementing a transparent and fair regulatory framework to promote competition, simplifying the process for new entrants to obtain licenses and permits, further unbundling existing government entities involved in the electricity sector, enhancing the legal framework for efficient bill collection, and ensuring transparency and accountability in regulatory decisions and operations of privatised entities. Moreover, NEPRA should draw insights from successful deregulation models from other countries, including India, and adapt best practices to the local context.
Privatization of DISCOs in Pakistan holds promise, but only when accompanied by a robust deregulation regime. By nurturing a competitive market environment, encouraging private investment, and ensuring transparency and accountability, Pakistan can attain the twin objectives of efficient energy supply and consumer welfare. Swift action in this direction is imperative for Pakistan’s socioeconomic progress.
