EDITORIAL: A report on provincializing power distribution companies (Discos) and ending the uniform power tariff has been circulating in the media for quite some time. The caretaker energy ministry team has no such plans.
Even if such a plan was initiated by the energy ministry during the tenure of the Pakistan Democratic Movement (PDM) government, it would have to be approved by the cabinet and later to be tabled before the Council of Common Interests (CCI) for its final approval. That this matter would require considerable deliberation is a fact. Constitutionally speaking, this may not come under the purview of caretaker setup.
Conceptually, transferring the Discos to the provinces is the right approach to dealing with the grim power sector challenge. However, as mentioned by an energy expert in a social media post, the idea is strictly in accordance with the spirit of the 7th NFC award and 18th Constitutional Amendment.
However, simply dumping them into the lap of the provinces without privatisation of their managements would be a very costly mistake, to say the least. If the plan is not well thought through, it can unleash an unmitigated disaster.
It is important to note that losses are higher in KP and Sindh Discos but they have their own cheap natural resources – hydel, gas and coal. These two provinces may ultimately demand the federal government set power tariffs accordingly. This would result in increased reliance of Punjab and K-Electric consumers on expensive imported fuel options. And this will open another Pandora’s box as we see in the case of natural gas pricing.
Having said that, for better governance, allowing provinces to have some control on Discos is a good idea as these cannot be run effectively by the power ministry in Islamabad. But it should be done in the right manner. The idea is to privatise them or have a model of public-private partnership where the incentives of private players are aligned with lowering the losses; and the provinces gain by shedding their respective burdens.
The key is to have private management in place — especially in the distribution system. A shining example is K-Electric (KE) whose aggregate commercial and technical losses are reduced from 32.4 percent to 15.3 percent and the consumer base is doubled along with similar growth in energy being delivered.
It is interesting to note that in the case of KE, the political stakeholders of Karachi were against it. And in contrast, if provinces and private management are on the same page, the improvement could be much faster and better.
The privatisation of Discos should be done sooner rather than later, as with increasing power tariffs the recoveries of Discos are falling. A rough estimate says the recoveries are down by 50 percent from around 10 percent in FY22 to 15 percent in FY23, and this year looks even tougher.
Allowing provinces to run Discos will ultimately become a political reality, which will not be quite that simple — in the first place, divisions will exist within the political parties themselves.
Copyright Business Recorder, 2023
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