Pakistan's Privatisation Plan for Power Sector: Lessons from a Troubled History

Pakistan's government has announced a plan to privatise several public sector companies, including power generation and distribution companies. However, the country's privatisation experience in the power sector has been marred by inefficiencies and malpractices, leading to huge accumulated losses and distorted power markets. Despite the government's intention to address financial woes, the plan is unlikely to solve the sector's problems without a thorough analysis of past mistakes and a well-designed privatisation strategy.

Key Takeaways:

• The privatisation drive in the power sector since the early 1990s was driven by political economy and international conditions, rather than a genuine desire to improve efficiency and affordability.
• The power policies of 1994 and 2015 favoured investments in the generation sector with generous incentives, while the transmission and distribution sector remained neglected.
• The over-investment in generation has resulted in inefficient and unaffordable power production, with the transmission sector also underutilised due to multiple issues.
• The 11 DISCOs across the country have accumulated huge losses due to technical and financial inefficiencies, with the circular debt standing at around PKR 2.4 trillion as of June 2024.
• The regulatory system under the current setup is inefficient, with NEPRA's inability to regulate the market even-handedly contributing to the sector's woes.
• Research suggests that privatisation of electricity entities without due consideration can lead to disaster, and there is no substantial evidence supporting efficiency gains or improvement in service quality after privatisation.
• The privatisation of DISCOs will not address the circular debt liabilities, reduce subsidies, or improve efficiency and affordability for compliant consumers.

Statistics:

• The power policies of 1994 and 2015 attracted investments in more than 100 private/public generation companies (Independent Power Producers - IPPs) with a combined capacity of more than 24,000 MW.
• The cumulative capacity of private IPPs is more than 12 times the installed capacity of the WAPDA power plants.
• The total subsidies to the power sector have surpassed PKR 5 trillion since 2006.
• The circular debt rose to around PKR 2.4 trillion as of June 2024, despite the government retiring more than PKR 2.6 trillion of circular debt since 2006.
• The capacity payments to IPPs rose to PKR 1.9 trillion in 2024, primarily reflecting the consequences of policy failures.
• The number of defective single-phase and three-phase meters across various DISCOs, including KE, stood at 170,848 and 10,281, respectively.

Sources:

• The Friday Times
• NEPRA Industry Report 2024
• Published by HT Digital Content Services with permission from The Friday Times