The first phase of the planned privatisation of state-owned enterprises will include power firms — two Gencos (generation companies) and as many Discos (distribution companies).

A top federal water and power ministry official informed a panel of senators last week that the central committee on privatisation had approved the plan to put Fesco, Hesco, Muzaffargarh Thermal Power Station and the Lakhra Power Project on the bloc (along with 27 other SOEs to be sold over the next 18 months).

The remaining power companies will be sold later on.

The successful auction of these power companies will kick-start the complete deregulation of the country’s collapsing power sector over the next several years.

Once the process is completed, a power exchange will replace the existing system, where private producers will be free to sell their electricity to private distributors at market prices, without any interference from the government.

Indeed, the prospects of a power sector regulated by free market forces and not bureaucrats and politicians has delighted private power producers and prospective buyers of public power companies, who are already contributing half of the country’s total electricity output.

Many investors are looking forward to an early commencement of the process.

“The announcement is commendable,” a top executive of a private power company commented.

“It shows that the government has the political will to do the right thing. A deregulated power sector will attract huge investment and ensure stable electricity generation and distribution going forward.”

Power sector deregulation is a major part of Prime Minister Nawaz Sharif’s reform programme for the sector.

Many consider the government’s decision to deregulate generation and distribution companies as the only viable solution to address the challenge of a growing power crunch, which is pulling the country’s GDP down by an average three per cent each year.

But not everyone subscribes to this view.

The opponents of power sector deregulation hold that the public companies could be salvaged without selling them by “appointing honest and dedicated people at the top jobs and by ending political and bureaucratic interference in their affairs”.

A Pepco official rejected the privatisation narrative emphasising the deregulation of the power sector as the only cure for its illnesses.

“Take the example of KESC. Its buyers haven’t invested anything in generation and distribution infrastructure. Nor have they succeeded in checking power theft or fully recovered bills from consumers. It is still a burden on the government finances,” he claimed.

Businessmen and investors like Mian Mohammad Mansha reject this viewpoint.

“There is little possibility of the ‘revival’ of public power companies as long as they remain in the

government’s control,” he had told Dawn in an interview early last month.

Mansha strongly backs plans for the immediate disinvestment of the entire public sector generation and distribution system.

“The people who think that Gencos and Discos can be turned around through the appointment of good management live in a dream world, or have vested interests in retaining their control in the government’s hands,” he said.

He was even opposed to the idea that the government should try to improve the balance sheets of the state-owned companies in any sector of the economy, so as to sell them at a better price.

“These are all excuses [by the vested interests] to retain control of the state-owned businesses [in their hands]. Privatisation is not about selling [state-owned businesses] or fetching higher prices.

“It’s about getting rid of these businesses in the larger interest of the people and the economy,” argued Mansha.

A former chief of a Disco agreed. “The power sector is a major drag on government finances, and it has become unmanageable; requiring investment of billions of dollars that the state is unable to finance.

“The current output of Gencos, for example, is less than half their installed capacity because of their old, inefficient technology,” he said.

“These inefficiencies and the theft of fuel are causing the national exchequer a huge loss.

“Only private owners can invest the required money and turn these companies around, as we have seen in the case of banking, cement and other sectors.”

The average efficiency of Gencos is stated to be less than half the average efficiency of 52 per cent of private power companies set up under the 2002 power policy.

Besides, Gencos face losses on account of pilferage of fuel and spare parts, as well as over-staffing and lack of funds for maintenance.

Meanwhile, Discos bleed over Rs200 billion annually because of distribution losses and theft, in addition to losses on account of unpaid bills.

Some people fear that the government may give these companies to investors for a song in its hurry to get rid of them.

But officials dismiss such concerns, saying the privatisation process demands the discovery of fair price and the bidders will be asked to offer higher prices.

A Lahore-based investor, who plans to form a consortium of businessmen to bid for Fesco, said it was a myth that people didn’t have money to buy public power companies.

“You’ll be amazed to see the response once the process actually starts.

“Finding buyers will not be difficult if the process is carried out in a transparent manner; if the price is right and the courts don’t interfere,” he argued.

Like others, he did not dispute the assertion that a deregulated power sector wouldn’t guarantee an immediate end to long blackouts.

However, he added, “it will get us there faster than a regulated power sector. It is time you chose between a deregulated, stable power generation and supply, or long blackouts”.—Nasir Jamal