Privatising power

Will the privatization of three DISCOs help the consumer? 

The privatization of three electricity distribution companies will carry on the process that was started by the privatization of K-Electric, the country’s only DISCO with its own generation stations, which made the process somewhat different. The process of privatizing K-Electric turned out to be messy, first because the original buyer, the Shanghai Electric Power Company sold out to the Abraaj Group of Arif Naqvi, which went down in flames after Mr Naqvi was indicted for fraud. Only recently did Shehryar Chishti manage to get control of K-Electric after disentangling it from the train wreck Abraaj Group had become. The innovative approach to generation that K-Electric is taking is reflected in the Keenjhar Lake project, whereby a solar plant would supply nearby industries 500 MW of electricity, which K-Electric has agreed to take.

While it is worth noting that the Privatisation Commission is not putting up loss-making DISCOs for sale. Indeed, the three DISCOs put on the block are makers of the highest profits. One approach would be for the government to quietly encourage business consortia, which already have industries in the area, to buy their local DISCO, much as the Sialkot Chamber of Commerce first built the Sialkot Airport, and then established an airline. These consortia could at a later stage bid for generation companies. It might have made sense for the government to have bundled together generation with distributions, to create entities like K-Electric, but in future those who have gained experience from running privatized DISCOs may bid for generation companies. Of course, that is sometime in the future. In the meanwhile, the government has to overcome the PIA privatization fiasco of 2024, While it successfully privatized PIA last year, the dust has not settled.

Privatisation of some but not all DISCOs opens at least the theoretical probability of differentiated tariffs, something which the government has so far avoided. If a privatized DISCO brings its line losses significantly below other DISCOs, will NEPRA allow it to charge a lower tariff? Doing so will mean jettisoning an ancient policy of maintaining uniform tariffs so that no area gets any advantage over another. This is likely enough, for line losses cover theft, and it is improbable that after privatisation, DISCOs will continue at winking at the practice. The government and the new DISCO managements may also clash, as the former seeks lower tariffs and the latter higher profits.