Is privatization going to fix Pakistan’s power sector inefficiencies?
By Mehar Angaiz
The power sector of Pakistan has long been facing grave issues and complications. Poor management, outdated infrastructure, and frequently rising electricity demand have sparked frequent power breakdowns, growing circular debt, and huge government subsidies. Privatization is often considered and discussed as the answer to these challenges. Those who support this solution believe it can bring more efficiency and effectiveness, but critics believe it could cause new problems.
One of the major issues faced by the power sector is circular debt, which exceeded Rs. 2.4 trillion in 2023. This occurs because of overdue payments to private power companies, maladministration, and poor management in distribution companies (DISCOs). There is a 17% transmission and distribution loss in Pakistan, which is much higher compared to countries like South Korea (3.6%), China (8%), and the US (5%). However, factors such as underreporting of usage, electricity theft, and outdated transmission lines escalate these losses. A large number of DISCOs are economically weak and cannot upgrade their systems or provide reliable electricity, leaving the government to cover their losses. Opponents of privatization argue that involving private companies is often advocated as a way to reduce losses and achieve better results.
The results of privatization in other states have shown mixed outcomes. For instance, in the UK, privatization helped improve efficiency and service delivery. In Chile, modernization of the power sector reduced losses, while in the UK, competition led to better customer services. However, the experience of privatization in some countries, like India and Nigeria, has been unsatisfactory due to poor regulations and inadequate improvements in service.
DISCO privatization in Pakistan raises many questions. For example, will private companies take over the entire system, including wires and poles? If not, how will competition work? What about electricity prices? Will they remain the same across the country, or will they increase for some users? To make privatization successful, Pakistan must upgrade its regulatory system. Strong rules and autonomous regulation are essential for privatization to work, but Pakistan’s regulatory system is weak and highly influenced by politics. Successful privatization in other states often required reducing subsidies, which led to higher prices for domestic and agricultural consumers, sometimes triggering public backlash.
For privatization to work, it is necessary to first address the issues in the current system. Delayed billing, outdated infrastructure, and electricity theft need to be resolved. Additionally, the privatization of DISCOs could bring other issues, such as job losses and skyrocketing tariffs for low-income families. For example, the privatization of electricity in Nigeria faced challenges due to ineffective planning and monitoring.
Looking back, Pakistan’s experience with Independent Power Producers (IPPs) in the 1990s offers important lessons. Involving private companies did enhance electricity generation, but the high costs of agreements and dependence on imported fuels created financial challenges. A similar outcome could occur if privatization is implemented without addressing the underlying problems.
The contributor is a student at Quaid-e-Azam University.
