KARACHI: In practical terms, there are many pitfalls to privatization, and more so in case of handing over public utilities to the private sector. Economist Salman Lalani observes: “No previous privatizations of public utilities anywhere have ever delivered the benefits that were promised to consumers”. He refers to British Rail as an example of privatization programme that got derailed and was largely abandoned.
Privatization of large entities in Pakistan, even if desirable, almost always runs into snags. Critics still question why Kanooz Al-Watan let its earnest money be forfeited but not to buy the public sector power producer giant KESC when it had first made the highest bid? The date for sell-off of the country’s biggest telecom (PTCL) keeps shifting. The two gas companies, dubbed Sui twins — SSGC and SNGPL — are on the privatization agenda, but it is still unclear how the government goes about selling them off. Wapda -— the power utility that supplies electricity to the upper half of the country -— is being contemplated to be sold in pieces: generation to one party and distribution to the other. The truth is that there is a big money in the sale of those giant utilities. And it is the game of high finance that creates conflict of interests among various stakeholders. That in turn makes privatization, even if desirable, very difficult.
Many opponents of privatization argue that because the driving motive of the private sector is profit and not public service, the public welfare may be sacrificed to the demands of profitability. They believe that a government which runs utilities poorly will lose public support and votes. Private companies are under no such stress. Critics of the privatization therefore argue that a private company would serve the needs of those who are most willing (and able) to pay, as opposed to the needs of the majority. If a government-owned company providing an essential service (such as gas) to all citizens is privatized, its new owner(s) could stop providing this service to those who are too poor to pay, or to regions where this service is unprofitable. The same goes for other services, such as electricity and water. Besides profiteering, the other problems of privatizing public utilities include lack of public accountability, creation of natural monopolies, concentration of wealth, and downsizing of labour.
Even if utilities are liberalized and they enter into free competition, households cannot fully benefit because (unlike large industrial clients) they can ill afford to shop around for cheaper rates and obtain lower prices based on it. Second, while public companies tend to practise price equality, the price structures of privatized services reflect the economic costs of supply. Some companies could even go further and raise household tariffs disproportionately, to deter small clients and be able to concentrate on the more profitable large, industrial ones.
Proponents of privatization, nonetheless, insist that essential services, such as water, electricity, gas, health, primary education, and so forth, should be handed over to the private owners. This argument, of course, relies on the view about obligations of the state, regarding what it should or should not be obliged to do.
A report by the ILO sheds light on some of the basic utilities: Water, the report says, is an essential component of life itself and an integral part of most development activities, from health and sanitation, to the location of human settlements, agricultural production, nutrition, and the maintenance of ecological balance. Electricity is essential in industry, transport and households, as well as in many aspects of modern social life. Gas, albeit less indispensable than the other two, has gained importance as a cheap and convenient source of energy. As such, water, gas and electricity distribution are public services, irrespective of ownership. Should they then be left to the will of the private sector?
KARACHI: In practical terms, there are many pitfalls to privatization, and more so in case of handing over public utilities to the private sector. Economist Salman Lalani observes: “No previous privatizations of public utilities anywhere have ever delivered the benefits that were promised to consumers”. He refers to British Rail as an example of privatization programme that got derailed and was largely abandoned.
