EDITORIAL: Former Secretary Finance Younus Dagha put his finger on the pulse of the problems associated with poor performance in some privatised entities in Pakistan by cautioning that privatisation must not transform a public monopoly into a private monopoly. Competition, he further clarified, is critical when considering privatising any entity and cited the example of K-Electric, currently owned by an investment company, that is operating under an arrangement that allows it to revalue its assets to keep its returns on assets lower than what the claw back provision would have activated. In addition, KE was given multiyear tariff whereby all losses and non-recoveries to the extent of 35 percent were in-built in the end-consumer tariff which explains why the tariff was the highest in the country.
To add insult to injury, successive federal governments in their drive to equalize the tariff countrywide have been disbursing inter-Disco tariff differential to KE on average of about 50 billion rupees per annum, though last year the revised subsidy amounted to 59.5 billion rupees while in the current year 25.5 billion rupees is envisaged. And for the entire Wapda/Pepco network the budgeted inter-Disco tariff differential has been in excess of 201 billion rupees per annum while in the current year 124 billion rupees is budgeted though time will tell whether the government will be able to keep to this target. However, the government has pledged to the International Monetary Fund under its ongoing Extended Fund facility programme that it would target subsides before end-March (a condition that remained unmet due to the pandemic), ensure timely disbursement of power sector-related subsidies by streamlining the required auditing process and start legal process against defaulters (again unmet due to the pandemic).
There is an urgent need for the government to review its subsidy policy under inter-Disco tariff differential, a long standing demand of multilaterals, and allow each Disco to set its own tariff, based on its profit and loss accounts.
These views gained further traction in the country's power corridors as Special Assistant to the Prime Minister on Power Nadeem Babar reportedly queried giving monopoly rights to buyers of distribution companies. He proposed privatising two Discos: (i) Islamabad Electricity Supply Company Limited whose audit report states that "Bank balances and trade receivables were misstated in the books of accounts of the Company to the extent of the amount of fraud. An internal inquiry committee in its interim report identified embezzlement of 207.75 billion rupees for the period July 2018 to June 2019; and (ii) Peshawar Electric Supply Corporation audit report notes that "the company has suffered a net loss of 46,952 million rupees (2018: 65,581 million rupees) for the year ended June 30, 2019 and that to-date the accumulated losses were 281,922 million rupees...the existence of material uncertainty which may cause significant doubt about the company's ability to continue as a going concern." These findings reinforce the perception that state-owned entities are beset by nepotism in senior appointments, inefficiency and corruption and privatisation is the way forward.
So far two administrations have launched revenue-based load-shedding, the ruling Pakistan Tehrik-i-Insaaf and the PML-N government, defined as shutting down supply to those feeders where receivables are higher than a certain percentage; however, critics argue that this has implied relatively poor areas of small provinces have been subjected to load shedding. And sadly, this approach has not dealt with inefficiencies and corruption that remain prevalent.
The government has pledged in the ongoing IMF programme (noted in the first review report dated December 2019) to "improve efficiencies and collections, the government will sign performance-based contacts with all Discos by end January 2020. The contracts will contain KPIs for improvement in collection, reduction in losses, and meeting the regulatory timelines for petitions submission, with mechanism to reward for performance and/or compensate for shortfalls. Discos will submit quarterly performance reports to Nepra and will be published in Nepra's website." Performance evaluation reports of Discos uploaded on the Nepra website are for four years - from 2013-14 till 2016-17 and there are no reports of the government actually signing performance-based contracts with Discos; however, introduction of surcharges agreed with the IMF will be implemented.
The government has not pledged to privatising Discos, no doubt because of failure by past administrations due to well organised workers opposition, however, the government does envisage seeking technical assistance from multilaterals on classifying state-owned entities into companies for sale, liquidation or retaining under state ownership by end September 2020 under the leadership of the Finance Ministry; however, here too the process identification may be completed though actual privatisation may be delayed because of the pandemic.
Copyright Business Recorder, 2020