October 16, 2005	Sunday	Ramzan 11, 1426

KARACHI: The privatization of public utilities -— water, power, gas — is seldom debated for its benefits and its pitfalls are very little understood. That does not make the issue any less important. “Should public utilities be placed in private hands?” a seasoned businessman was asked. The answer came as was expected: “May be yes, but I am not sure.”

Not many people really are clear headed on the subject. Interviews conducted by Dawn’s team of reporters with different stakeholders in the economy carry a mixed message. And what is more, even political parties that are supposed to be articulate on controversial issues were found groping for an answer.

Representatives of the Pakistan People’s Party and the Pakistan Muslim League-Nawaz opposed the privatization of public utilities but did not care to explain when and why their parties had changed position on the issue. Both parties were champions of privatization during their rule. The government of Benazir Bhutto had opened up the power sector to independent power producers (IPPs). Ex-prime minister Nawaz Sharif was equally enthusiastic about his liberalization policies. Privatization in the financial sector gathered momentum during his tenure.

The fact is that while there may have been variations in the level of actual materialization of deals for political considerations, the policy thrust has been the same over the last 20 years.

But before we proceed further, let’s see what public utilities mean to the people.

Sufficient supply of water, gas and electricity is vital to life and development. It provides the basic infrastructure on which the economic stands. There are several measures to judge the level of economic development of a country, such as GDP growth rate, level of technological development, level of human capital development, etc. Efficiency, dependability and availability of utility services could also be used to measure development and future prospects. Unfortunately, Pakistan’s strikingly sharp picture of growth pales somewhat when the quality and quantity of public utilities are taken into consideration.

Pakistan is rich in natural resources. We have abundant water resources with snow-capped mountains in the north and the sea in the south, with rivers and tributaries covering the better part of the country’s plains. Balochistan is blessed with huge mineral and gas deposits. It is an irony that the country should still be deficient in both tap water supplies and electricity. Women in rural Pakistan have to walk up miles to fetch a pail of water. And many make do without power and gas even today. Water and power services are neither universal nor efficient. The gas companies are efficient and affordable but their spread is limited.

The utility companies responsible for generation and distribution of water and power are riddled with inefficiencies. There are vast areas, especially in Sindh, Balochistan and the NWFP, that are either not covered by the utility companies or are only partially served. Even in cities, availability of clean drinking water is a luxury that few can afford. The bottled water market has expanded but this high priced commodity is out of the reach of a majority of the people. There are reports of water shortages and power outages almost every day. Water contamination and power theft are common. The end consumer, whether an individual or a company, is not happy with the existing situation.

Trade union leaders, in principle, oppose all privatization programmes and have continued to offer resistance over the last several years. But in most cases they have agreed to negotiate and accepted the deals offered once it became clear that privatization was inevitable. Opinion leaders in the two smaller provinces are also not happy with the process, as they feel that it has not benefited their provincial economies. They have particularly opposed the government’s plan to privatize public utilities, as besides their lack of trust in private owners to expand coverage to the less developed areas, they fear a direct loss of provincial revenue. They say that private owners might not agree to give royalties that they are entitled to receive in the current arrangement with the federal government.

Two decades back the policy of privatizing public entities was initiated in indebted Pakistan under donor pressure. The international financial institutions (the World Bank, the International Monetary Fund and the Asian Development Bank) saw the public sector as a deadweight clouding growth prospects. Over-sized loss-making enterprises were dependent on the government for support, rendering it almost bankrupt. Powerful global players like the IMF are in the business of lending but like all commercial lenders evaluate credit worthiness before extending their services.

The western lenders pushed their agenda of free market in cash starved countries indirectly through the World Bank and the IMF. They made financial help conditional and demanded that economies of the South be recast in the image of their own economies. Beside other conditions, they demanded that the governments should improve their balance of payments position by disposing of public units that were draining the public coffers. The privatization policy was projected as a logical option. It provided extra revenue for cash-strapped governments, ensuring continued payment of debt obligations. More strategically, privatization policies increase the scope of western multinationals in developing countries.

But did the privatization bear fruit? Which companies were put on sale? How transparent was the process? What is the full quantum of the proceeds? How was it spent? How are the units privatized so far performing with a change in ownership? The information available on these details for public consumption is patchy. There are many aspects that are shrouded in mystery. One thing is clear that over the last 20 years and under nine different governments in Pakistan, the thrust of economic policy has been the same, the one supported by world financiers and western governments — liberalization, deregulation and privatization.

Officials often talk of a broad political consensus on the proposition that privatization is in the larger national interest. State Bank Governor Dr Ishrat Husain in a speech recently in Karachi said: “The role of the government should be that of a neutral umpire, who lays down ground rules for business to operate and compete, to monitor and enforce these rules, to penalize those found guilty of contraventions and to adjudicate between competing business firms. If a government owned firm itself becomes one of the players in the market, there is a strong conflict of interest and other market players lose confidence in the neutrality of the umpire. The economy thus pays a heavy price for this loss of the market mechanism in the production, sale and distribution of goods and services.”

The problem with the privatization of public utilities, beside its social dimensions, is that the barriers to market entry for additional sellers are often too high and purchasers often don’t have access to good information on which to base their decision to buy. In case of necessities the demand is not elastic after a certain point. Even if water is priced high, people will have to buy a minimum level for their survival. The forces of demand and supply can work wonders where all conditions of a free market are met. The real economy is not a level-playing field, but “a mountainous terrain that includes several high peaks from which well-endowed corporate and individual warriors swoop down to seize opportunity”.

The conclusion that one draws is that there is a lack of clear assessment of the benefit and cost of the policy of privatizing water, gas and power. Instead of assuming public support, there is a need to promote social dialogue on the subject of the ownership and management of large utility infrastructures. That is vital, for the policy towards these key services will have far-reaching consequences for economic growth, employment and the well-being of the population.

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