KARACHI: While fully supporting the privatization of Wapda, SSGC, KESC and water board, the private sector gave a mixed response to the possibility of price increases after the sell-off of these utilities.
They said consumers had witnessed the benefits of privatization of utility companies all over the world. “But in Pakistan, there are a lot of issues that need to be addressed so that consumers could avail the benefits of such a move.
Dawn placed some questions before the leading private sector representative bodies. Some queries are: How can monopolization be restricted in case of privatization of KESC, Wapda, SSGC, water board, identifying countries where such amenities have been privatized; the effect of privatization on the cost of doing business; how can inefficiencies of Wapda, KESC, water board, etc., be minimized?.
FPCCI: Federation of Pakistan Chambers of Commerce and Industry President Chaudhry Mohamamd Saeed favours the privatization of utility companies as he thinks the private sector all over the world is effectively and efficiently involved in all these businesses. The involvement of the private sector in such institutions has brought innovation, improvement in quality, competition and transparency, which have improved the performance of the institutions.
He said that these measures had greatly helped in controlling the monopolistic regime in these institutions in many countries.
“Privatization of these institutions is itself a practical move of the government to put an end to the monopoly. The government has established regulatory bodies like Nepra and Ogra to gear up the performance of these utilities by introducing reforms. “A ‘consumer welfare society’ should be in place to provide safeguard to the rights of consumers,” he stressed.
“The UK is a glaring example where public and private sectors are efficiently involved in discharging their responsibilities to the satisfaction of people. The amenities like water, power and gas are being provided and operated by the private sector in collaboration with the public sector. The infrastructure laid by the state is utilized by both private and public sectors on sharing basis to facilitate people with these basic utilities.
“Japan is transforming itself from a government-led society to a private sector-led society. To enhance the performance level of low-performing institutions, we will have to switch over to the private sector-led society,” the FPCCI president believes.
About the cost of doing business after the privatization of utilities, he says privatization contributes to economic growth through productivity gains, efficient utilization of resources, better governance and expansion in output and employment. Profit-making enterprises under the public sector may be making profits due to the unique market structure, such as monopoly or other privileges or concessions conferred upon them by the government, but it does so at the expense of a consumer who has to pay higher than the market price for the product or services.
The ordinary consumer gets a benefit only through competition among private sector firms in the form of lower prices and better services as has been demonstrated in the cases of banking, telecommunications and, more recently, air travel, he adds.
The fears about employment losses in the industry as a result of the privatization are also, by and large, unfounded. The example of the banking industry privatization controverts those who claim that privatization means jobs are lost. In 1997, when the restructuring, down-sizing and privatization of the nationalized commercial banks picked up speed, there were 105,000 employees working in the financial sector. After the privatization was completed, the banking industry has expanded and the workforce has expanded to 114,000.
In reply to a query regarding any link between the size of the government and responsibilities it is willing to handle, he said it was not the size of the government that streamlined the functions but the efficiency level which measured the productivity and usefulness of the government. A country like Pakistan can not afford to have irresponsible huge government structure because it increases expenditures on non-developmental activities. If a government fails to provide the basics needs like safe drinking water, power and gas, there is no justification to sustain such a huge size of the government.
Instead of increasing the rate of taxes, its base needs to be broadened and national resources should be utilized in a way to facilitate access of these basic facilities to people, he added.
On minimizing inefficiencies of Wapda and water board, Mr Saeed said that the inefficiency could be reversed by introducing reforms and good governance, which could bring an end to malpractice and bureaucratic and complex procedures. The management of these institutions should be handed over to the professionals who could effectively utilize the available resources in the larger interest of society. “I believe that social services are often managed by the government but if they fail to discharge the responsibilities, a better solution is privatization,” he said.
KCCI: Karachi Chamber of Commerce and Industry President Khalid Firoz favoured sell-off. An improvement in the existing infrastructure and service delivery in the utilities sector is essential for both business performance and improvement in living standards.
He said the government could restrict the privatized companies from becoming monopolies by implementing antimonopoly laws and empowering regulatory bodies — Nepra, Ogra, PTA, etc — to monitor their working.
The global wave of privatization started in the UK. Former Prime Minister Margrett Thatcher had privatized British Gas, British Petroleum, British Telecom, the electricity system, water companies, etc. The situation in the UK is unique since it has privatized its entire electric industry. In Spain, water is approximately one-third privatized.
The KCCI president said that major privatization projects in both generation and distribution had more recently been undertaken successfully in Hungary and Czech Republics, and there were also some independent power projects (IPP) in these countries.
On the issue of pricing after the privatization, Mr Firoz said that profitability could be improved not merely by raising prices. It can be increased manifold by improving efficiency and productivity of labour and capital.
At present the public sector utilities like water and power are losing money because of their inefficient operations and corrupt practices. Hence the pricing of utilities and cost of doing business will not necessarily rise after the privatization. The regulatory bodies will have to be fully empowered to act as watchdogs, he adds.
“The inefficiency in Wapda, water boards, power distribution services and gas companies could be minimized by limiting the government’s role within the limits of the scarcest resource, that is, the supply of competent and honest administration.”
He says that the government has no business to be in business and should privatize the utilities. “It should create an administrative mechanism whereby the privatized companies provide the services on a regular basis at affordable prices.
SITE: Site Association of Industry Chairman Dr Mirza Ikhtiar Baig supports the privatization of public utilities but with certain conditions regarding their guaranteed investment plan for the upgradation of the existing generation, transmission and distribution network to give better service to the customers and avoid monopolization. “Any increase in rates should be subject to an approval by the regularity body on valid and bona fide justifications and grounds.”
The private management is more cost effective, efficient and service-oriented than the public sector management, he adds.
He agrees that the main concern is that after the privatization of KESC power rates may shoot up which will eventually increase the cost of doing business in Pakistan.
“In the post-global scenario with tough competition, our products will become uncompetitive in the international market, leading to closure of unviable industrial units.” He says at the moment government is funding KESC for a difference of the present consumer power rates and higher rates already approved by Nepra and in order not to pass on this price hike, the federal government is paying the utility company (KESC) the differential of the rates. But he points out that once the utility is privatized the government will definitely stop paying this amount, alternatively the new management will increase the rates, which will be a blow to all consumers, particularly the industry.
Dr Baig says that it is proved that the private sector is the engine of growth. By selling public units the size of the government and responsibility will also reduce with the lesser financial burden, which will eventually improve the economic performance of the country.
However, he says that inefficiencies in Wapda, water boards and KESC can be minimized with a professional management, controlling thefts and pilferages and augmenting the existing obsolete transmission and distribution system to reduce T&D losses. By reducing just one per cent T&D loss, KESC can save Rs500 million.
KATI: Korangi Association of Trade and Industry Chairman Gulzar Firoz also favours the privatization, saying that without competition in private companies, services cannot be improved. However, he says that there has to be a check and balance and it should be mandatory that all boards of directors should have at least one representation each from the ministry of concerned and public.
However, Mr Firoz points out precautions are necessary that such important and sensitive utilities may not be privatized and handed over to those foreign companies which can create any hostility at the time of emergency or war-like situation.
If such utilities, like electricity, gas and water are to be run by the government and not privatized then the management should have representation from workers, chambers and prominent citizens.
FBATI: F.B. Area Association of Trade and Industry Chairman Mohammad Rehan Zeeshan conditionally supports the privatization of utilities, saying that the generation of utilities should be under the government control, while distribution and collection should be privatized.
“The generation control will automatically restrict the monopolization even if distribution and collection are privatized. To create a healthy competition, saving strategic utility generation reserves and meeting the future demands of utility, the government should award licences for establishing/exploring the generation of utilities parallel to the exciting government-controlled generations. This will bring foreign investment and enhanced capacities for utilities, which is essential for rapid industrialization and new jobs creation,” he adds.
NKATI: North Karachi of Trade and Industry Chairman Dawood Usman Jhakoora also favours the privatization of public assets. He says the performance of private business can be improved by proper handling, thus the prices of utilities will invariably reduce as the profitability will increase. The benefit will be driven by the business and the consumers by way of competency.
Mr Jhakoora says that the size of the government should always be linked with its responsibilities. The government should be willing to handle the same. No government can absolve itself from its responsibilities. In fact, he says, the government should hold the responsibilities of only defence, finance and foreign affairs. Other responsibilities should be decentralized. — A.S. KHAN
