DURING the last two decades, privatization has become a global convention, embracing a number of countries. Privatization polices are being pursued as a part of ‘structural adjustment’ and ‘institutional reform’ programmes.
In many developing countries, factors like increasing inefficiency of public sector, slow economic growth, rampant corruption, deteriorating quality of public goods and services, and cumbersome bureaucratic procedures, etc. have virtually led to a crisis of governance, and the solution for all this is sought in privatization. However, the critics of privatisation have pointed out that privatization and liberalization are increasingly becoming an excuse for the abdication of basic social responsibility by governments in the developing countries.
Pakistan is among those developing countries where privatization has been pursued with much vigour and enthusiasm. Not only the industry has been privatized, but the social sector and some of the public utilities have also experienced privatization. But privatization policies and their implementation have raised a host of critical issues and concerns, which need to be addressed adequately. One such sector is power/electricity, which has undergone major developments in recent years, including partial privatisation. The benefits of privatisation and liberalisation have not been passed on to the consumers of electricity, who remain confronted with a number of problems ranging from arbitrary price increases to power fluctuations and very poor quality of services in rural areas. This article is an attempt to raise some of the crucial concerns and issues raised in the wake of power sector privatisation from citizen-consumer perspective.
The power sector in the country has undergone a number of developments in recent years. At present, the government owns two vertically integrated power utilities, namely, Water and Power Development Authority (Wapda) and the Karachi Electric Supply Company (KESC). Wapda controls almost the entire system of generation and distribution of electricity in the country, except for the city of Karachi, which is being supplied electricity by the KESC.
Power generation has remained under the exclusive state control until very recently. Some private power distribution companies had been allowed to be set up in 1960s but, under Zulfiqar Ali Bhutto’s nationalization drive in 1970s, those too were nationalized and merged in Wapda in 1972. However, in early 1990s, the government decided to privatize the sector, but before privatization, the area boards of Wapda were to be corporatized, i.e. transformed into corporate entities. It is important to note that the main justification given for the power sector privatization was to attract the foreign investors. The efficiency gains did not constitute any significant or primary rationale for privatization.
Though the government had decided to privatize the sector in early 1990s, it took years to actually start privatizing the sector. In early 1994, an energy policy was announced by the government, which offered an attractive price of $0.065 per unit for the purchase of electricity from anyone and anywhere in the country. It attracted a number of foreign investors in the power sector to generate about 12000 MW of power at an estimated cost of $13 billion approximately. The efforts for privatization could only materialise in 1996, when the government decided to privatize Kot Addu and Jamshoro thermal power plants and the Faisalabad Area Electricity Board. In addition, the government decided to privatize the KESC as well.
Initially, only 26 per cent of the shares in the electricity generating plant at Kot Addu were offered for sale, which was followed by the sale of another 10 per cent stakes. It resulted in the creation of the Kot Addu Power Company (KAPCO). The KAPCO had very little government interference, and its efficiency increased after privatisation. However, due to a number of reasons, including labour unrest, Wapda took back the shares of Kot Addu power station, which had been sold in 1996 to the National Power of the United Kingdom. In fact, WAPDA’s labour union, which is one of the most powerful unions in the country, had vehemently opposed privatisation of the power sector. The efforts of the government to the privatization of power sector has been slow as compared to the other sectors like the telecommunication. One of the reasons for this is the prolonged Hub Power Company and Kot Addu Power Company litigation, which has only recently been resolved.
As far as the regulation of the power sector is concerned, the National Electric Power Regulatory Authority (NEPRA) was established under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997. The NEPRA is “responsible for providing licenses to electric power generation, transmission and distribution service providers, regulating the provision of electric power in Pakistan, setting the terms and conditions of the licenses, maintaining standards of service, setting tariff, and if appropriate renewing the license.” The budget of the Authority was to be raised by user fees to be charged from the regulated entities.
The critics of the privatisation of the power sector in the country argue that in the beginning only one distribution company should have been privatized so that its performance could be monitored after privatisation. After learning lessons from this experience, the privatization model should have been modified and then replicated to avoid problems arising out of the first instance. Moreover, instead of privatizing the assets of the distribution companies, their management and operation could be leased out on contract basis for a specific period of time. Whereas the state should have retained the ownership of the companies, and thus be responsible for security. The contract could be extended on expiry, but subject to good performance by the private companies.
Consumer concerns: The power sector in Pakistan has only partially been privatized, and thus, the proclaimed benefits of privatisation like improved quality of services and increased efficiency have not been yet passed on to the consumers. As a result, the problems of consumers remain the same. Their concerns range from poor quality service and lack of universal service provision to the issues related to accountability, transparency of privatisation process, regulation and public participation. These concerns are briefly discussed hereunder:
Critics contend that the services provided by the Wapda are one of the world’s most “inefficient” and the system is “most corrupt”. The consumers have a number of serious and legitimate concerns. These include, inter alia, the following: load-shedding, frequent power break-down, distribution or line losses and pilferage of electricity, long list of demands for the services, unreliable services, particularly, voltage fluctuations resulting in damage to valuable electronic equipment, slow electrification of remote or rural areas, which is a low priority for the government, electrocution due to lack of safety arrangements, etc. In addition, there are complaints which an ordinary consumers faces in his or her dealings with the distributors. According to Wapda’s own statistics, the frequency of some major kind of complaints in a month is as given below:
Incorrect meter reading 38 per cent
Revision of detection bills 16 per cent
Excessive/accumulated units 7 per cent
Non/late receipt of bills 3 per cent
Amount paid but not posted 3 per cent
Change in tariff 1 per cent
Replacement of defective meter 9 per cent
Miscellaneous 23 per cent In addition, frequent and prolonged load-shedding in both urban and rural areas, despite assurances of successive governments, continue to create inconvenience for consumers. Since only one power line connects the premises of consumers with the distribution system, in case of fault in the connection line, the consumers have to face power break-down, which are particularly frequent in the rural areas, and at times prolong to many hours a day, if not for days. The city of Karachi faces frequent power trippings and break-downs. This is because there are four industrial estates in Karachi, and the electricity demand of the city is increasing at an average of 8 per cent every year. In addition, the transmission system of the KESC is quite old and not well-maintained, and thus, has become very tripping-prone for normal power supply, what to talk about heavy load. Thus, the consumers are left to the mercy of the service providers and distributors.
In 1999 the distribution losses and pilferage in KESC had reached 60 per cent although the official figure in this regard was that of 44 per cent Moreover, only 53 per cent of the consumers paid bills. The ‘kundas,’ which are used in power theft, were estimated at 450,000. This figure must have increased by now given the fact that the punitive action against those guilty of pilferage is not much effective. However, the target of 36 per cent reduction in line losses has not been achieved by the KESC. Similarly, according to an estimate, 27.9 per cent of electricity of Wapda is being lost due to pilferage and other malpractices. On the one hand, the Wapda needs to increase its revenue generation capacity and, on the other, reduce the rate of line losses and power theft, since it can directly benefit the consumers by reducing over-billing.
The Wapda and the KESC have to overcome power theft and corruption in their organisations. Grossly inefficient staff needs to be made more efficient, and over-staffing must be checked. However, it is important to adequately address the labour concerns regarding compensation, so that the magnitude of opposition to privatization from the labour unions could be decreased. It has been pointed out that the country’s antiquated and out-of-date laws relating to labour are one of the serious impediments to privatization.
Another significant consumer concern is the issue of the replacement of a private company if it does not perform or fails to perform satisfactorily. In such a case, the people are left with no choice but to suffer due to non-performance or tolerate poor quality services. This is because the cancellation of distribution license and selling it to another private operator is a time-consuming issue, involving legal complexities. This whole process of cancellation of license and its issuance to a third part may take years, and consumers in the meanwhile would have no way out. Thus, there is a need to evolve such a mechanism whereby the private distribution companies could be replaced by new ones, if they fail to perform well, without disturbing the existing system of supply of electricity.
One of the most crucial consumer concerns is related to the pricing of electricity services. Some people expect that as a result of privatisation and the consequent competition in the sector, the electricity bills would be reduced. However, on analysing the power sector privatization, one can easily conclude that privatisation in its real sense, which ensures a healthy competition, increased efficiency and improved services, has not in fact taken place. It is generally argued that privatisation in its true essence should have not only resulted in improved quality of services but also in reduction of prices. On the contrary, the fact is that consumers of the power services are complaining of excessive billing.
The prices of electricity have gone much higher, and are likely to go up further. It has been asserted that expecting the electricity prices to fall after privatisation seems to be ‘unrealistic’. This is because the consumers are paying not only for the electricity actually consumed, but also for the upgrading and expansion of the system to meet the increasing demands. Here the example of the British experience of the privatisation of electricity seems pertinent, where as a result of it, the power consumers are paying the lowest electricity charges in Europe.
In 1995 and 1996, there were sharp increases in the power tariff, which adversely affected the middle and upper income groups. Rise in the tariff can be assessed from the fact that the domestic power rates for 1000 kwh of electricity trebled during 1989-96, i.e. from Rs989 to Rs2,738. The sharp increases in power tariffs do not end here; the Wapda and the KESC have been continuously demanding upward tariff revision from the NEPRA.
For instance, the KESC demanded an increase of 32.7 per cent within next 18 months. The demand included an increase of 15 per cent from November 1, 2000, and 8% more from July 2001 and then again 8 per cent in July 2002. The NEPRA allowed the KESC an interim raise of 13 paisa per unit of electricity. What is alarming to note here is that the ministry of water and power pleaded the case of the KESC before the NEPRA. The ground on which this demand was made is the increase in the price of furnace oil. It is interesting to point out that when the prices of furnace oil came down in the wake of its deregulation by the government, the private companies did not give any indication of lowering down the rate of tariff. However, one way of decreasing the power rates is to reduce power theft and line losses. Moreover, the non-payment of bills by the ruling elite and certain government quarters must also be checked. It can significantly help in lowering down the tariff. Arguably, a comprehensive pricing model should have been developed prior to privatisation, covering the electricity prices at generation, transmission and distribution levels. Without addressing the consumer concerns related to the crucial issues of pricing and tariff, the drive for the privatisation of public utilities can hardly be made successful from people’s perspective.
The state is responsible for providing the basic and essential utilities to all the citizens of the state irrespective of their locality, economic status, ethnic identity, etc. The supply of electricity must be viewed as a state responsibility, rather than from a purely commercial viewpoint. Moreover, the electricity must remain affordable for a common man even after privatisation. Getting uninterrupted supply of electricity constitutes a basic right for every citizen.
Given the fact that in Pakistan, the number of power consumers is far less than in developed countries, there is a need of rapid electrification of the remote and rural areas. It is also argued that in case of electricity services, the state is also responsible for the security and maintenance of the distribution systems. However, after privatisation the electrification rate has considerably declined. For instance, in 1997-98, only 694 villages were electrified, whereas the target was the electrification of 4000 villages. In 1998-99, the target of electrification of mere 1497 villages too was not realised, and only 1232 villages could get electricity. Thus, the power sector privatisation has raised legitimate concerns regarding the accessibility and availability of electricity services.
In Pakistan, despite privatization of certain units and coming in of Independent Power Producers (IPPs), the generation of electricity is still largely in the public sector. Any regulatory framework, therefore, needs to attain its envisaged objectives not only in the context of competition among private companies/units but also vis-‘-vis government, which has monopoly, or significant control in certain areas. This complicates the things as any regulatory body becomes vulnerable to influences not only from private business but also from government, which participates in the process as a corporate entity.
At present, the NEPRA is regulating the tariff of the power distribution companies, which they charge from the consumers, but the Authority has no power to regulate the prices, which the distribution companies pay to the government for the purchase of electricity. This may result in arbitrary increase in the rates of electricity by the government, having a direct bearing on the consumers of electricity, but the NEPRA is unable to effectively regulate it, and hence, its role remains marginal.
Under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997, the NEPRA is bound to safeguard the interests of the consumers vis-‘-vis the state and the market. A number of sections in the Act ensure the protection of the interests of consumers of the power services, or deal with the consumers. These sections include the following: Section 7(6) reads as: “In performing its functions the Authority shall protect the interests of consumers.” Section 31(2)(a) states: “Whilst determining the tariff the Authority shall protect consumers against monopolistic and oligopolistic prices.” Section 31(3)(b) states: “Whilst determining the tariff the authority shall provide an opportunity for customers and interested persons to participate meaningfully in the tariff approval process.” According to the Section 39(1), “Any interested person may file a written complaint with the Authority against a licensee.’ Section 46(2)(f) reads as: “The Authority may make rules for the procedure to resolve disputes between consumers and licensees.”
Though the Act envisage certain mechanisms for complaint redress, the power to award compensation or damages to consumers is not clearly stated, and the Act does not explicitly pronounce that the NEPRA can award compensation to a consumer or an end user in respect of a complaint. If it is not within the jurisdiction of the Authority to award compensation and damages, it is a major shortcoming in the Act from the consumers’ perspective. However, it has also been argued that under the section 7(6) the NEPRA has the power to do so, or it may impose it as a term or condition in the license under section 24(4)(1) to award damages or compensation to the consumer or complainant.
The private power generating companies, from which the government buys electricity, present another case, which urges the need for effective regulation. The price of electricity per unit, which is sold by these companies to the government, is “one of the highest in the world”. Moreover, the NEPRA is not responsible for ensuring environmental protection, and thus, take any action against those power-generating units that cause serious environmental damages. Environment needs to be protected against any harm, since it is a legitimate concern of the citizens.
From consumers’ perspective, the NEPRA has not been up to the mark in ensuring meaningful public participation in its proceedings on issues, which directly affect consumers and citizens. Although it held public hearings but the quality in terms of allowing consumers enough time to make their point or submit their point of view after engaging expertise in the private sector was not always maintained. For instance, in November 2000, the NEPRA provided access to the proposed automatic fuel adjustment formula just one day before the public hearing and thus precluded consumers and citizens from examining the formula independently. the NEPRA also compromised on its financial autonomy by allowing government to submit only a token amount of Rs1000 for the disposal of its tariff petition. Any decision having implications for NEPRA’s autonomy is likely to undermine consumers’ confidence in the regulatory arrangement, and hence, can derail the whole privatisation process by triggering a political backlash.
Transparency and accountability are the key-concepts in the good governance discourse. Transparency and accountability in the conduct of, and decision-making in, the power sector can considerably check malpractices, corruption, incompetence, etc. Here it will be appropriate to refer to the controversy on IPPs (especially in the case of HUBCO), which could have been avoided by following procedures transparently and by making all the relevant information available to the media and citizens. As the deals were shrouded in secrecy, many objected to the deals and all kind of speculations about kickbacks created what was no less than a crisis for the power sector with significant implications for the national economy and consumers.
If these deals provide any lesson, it is that such agreements should never be signed in secrecy and without inviting informed public discussion on relevant aspects. Since it is feared that regulators are likely to become under the influence of corporate interests, it is very important that they conduct their proceedings in transparent manner by involving all the stake-holders, particularly the consumers in a meaningful way who are often most vulnerable in view of being unorganised. the NEPRA, at the best, presents a mixed record. It has performed well as compared to other regulators in Pakistan, and a few months back the NEPRA has turned down the request of WAPDA for tariff revision. It is expected that the NEPRA would become consumer-sensitive and take into account their legitimate concerns.
(The authors are associated with the Consumer Rights Commission of Pakistan).
