Building on privatization (2014)

The study reviews the performance of electricity utility companies in Pakistan by comparing the state owned companies (PESCO & IESCO) with the privately managed Karachi Electric. Using the benchmarks of governance, operational management, financial performance and commercial management, the report develops a scorecard to track the performance of DISCOs and indicates factors which have led to the turnaround of KE after its privatisation. The report is beneficial for the analysts of power sector as well as decision makers.

Privatisation, as everyone should recognize, encourages efficiency, transfer of technology, foreign capital investment and higher tax revenue, in addition to generating higher employment opportunities for both skilled and unskilled jobless workers of the country. However privatisation should be seen as a means to improve performance and open competition rather than an end in itself. Therefore an enabling environment must ensure level playing field for all players. And thus the thrust of power policy should be on promoting and protecting good and healthy competition instead of competitors. There is no competition at the level of distribution in the energy sector.

Unless all distribution companies are made responsible for their finances and allowed to function independently, it would not be possible to bring in efficiency in the power sector because inefficient DISCOs are being cross subsidized by some profit making or at least more efficient DISCOs. The turnaround of Karachi Electric offers two paradoxical lessons: first, privatisation is not enough, and second, without privatisation, nothing works. In first three years after privatisation, this report tells us, the Karachi Electric continued to bleed like the old days. However, since the takeover by the new management, the KE has entered a new era. Building on a significant down-sizing of the company, the management radically changed its human resource and governance structures. Not only its service quality has increased, but also its social role in the city life has become much more responsible. In other words, it has built on the privatisation, without which it would have had no incentive of investing over $1 billion.