Privatization in the Power Sector is the only way forward: Experts
ISLAMABAD, August 28 (SABAH): The Sustainable Development Policy Institute (SDPI) and Network for Clean Energy Transition (NCET) organized a consultative discussion on “Privatization of Pakistan’s power utility sector: Opportunities and the lessons learnt.” The event also showcased report launch on prospects of privatization of Pakistan’s power utility sector.
Along with leading examples from across the world on privatization reforms, potential challenges, the report that provided a critical review of K-Electric’s transformation journey, underscored that power sector’s privatization was a strategic way forward to improve efficiency, achieve operational turnaround and enhance consumer centric initiatives. However, it also strongly recommends that it needs to be executed with a strategic and well-regulated approach that aligns with broader economic and environmental goals, including compliance with the Carbon Border Adjustment Mechanism (CBAM) and supporting green supply chains.
In his welcome remarks, Deputy Executive Director, SDPI, Qasim Shah said the session has been convened for benefiting from the lessons of K-Electric in power sector.
He underlined that there were crises in the power sector including increased tariff, taxation, political turmoil and protests against power entities. The SDPI, he said has the mandate to provide advice to the government on key policy issues and social problems through dialogue with relevant stakeholders.
The current power crises, he said was mainly due to poor infrastructure, transmission lacunas, and outdated strategies, he added.
Dr. Khalid Walid, Research Fellow SDPI, in his presentation provided a brief analysis of the report titled “Privatization of Pakistan’s Power Utility Sector: Opportunities and the Lessons Learnt”. He added that there is troika of economic turmoil, energy crisis and climate change woes unitedly driving the mix issues in the country. In the power sector, he said there are inefficiencies in infrastructure, transmission and generation system, whereas privatization is seen as a solution to reduce inefficiencies in the power sector. He also cited the global best examples of power sector privatisation like in Chile and UK that reaped convincing results.
He said in KE’s case also there have been considerable benefits to the organization, consumers as well as to the economy. He added that since privatization, K-Electric has cut its Transmission & Distribution (T&D) losses in half, doubled its power consumed and consumer base. Khalid further added that K-Electric has also revolutionized its customer engagement through digital platforms which provide real-time updates on billing, power outages, and other services. Citing the report, he said that KE has over 1.88 million consumers digitally connected with it today unlike any other DISCO in the country. K-Electric has also been endorsed by the World bank for saving 900 billion rupees for consumers and Government, through its privatization.
He highlighted that power sector privatization was a strategic solution to ensure renewable energy integration, regulatory framework development, digitalization and enhanced consumer base.
“There is need of regulator’s role as a facilitator to allow more private entities to enter a competitive process, improve demand and industrialization support, increased market competition and effective wheeling reforms,” Dr Khalid said.
In his keynote address, CEO K-Electric, Syed Moonis Abdullah Alvi said privatization of power sector is the cornerstone of every sustainable development initiative for Pakistan. Before privatization, he said, K-Electric (which was KESC at that time) was receiving operational subsidy from the government to fund its operations which was reduced to zero after its privatization. He said since privatization, KE has invested about USD 4 billion across its valuechain. With regards to Tariff Differential subsidy (TDS), Moonis underscored that TDS was being provided to consumers of Karachi and not to K-Electric.
He also added that KE’s success as a private entity was also evident from 15 bids that it received for its renewable projects because the producer had confidence in KE meeting its expectations. He added that KE was able to attract the lowest bid of 3.88 cents for its renewable projects very recently.
Ali Khizar – senior economist while agreeing to Moonis highlighted that the biggest benefit of privatization was that KE had no addition to circular debt, had there been other discos privatized as well, the circular debt would either be too low or non-existent. He highlighted that while the focus should be on the privatization of distribution companies, immediate focus was also required on demand stimulation for power sector as it would reduce the menace of capacity payments.
Ameena Sohail, Former Advisor National Electric Power Regulatory Authority (NEPRA) said the Authority said that NEPRA’s role in privatization is important. She further added that post 2018, there has been tremendous development side on the regulatory side of the power sector, Government unfortunately has not given much attention to regulatory and legal changes and thus because of that the power sector is not producing the kind of performance improvement it should have been displaying. Furthermore, she added that if the Government wanted to privatize entities, it would need to give privatized entity and environment of competition.
Asad Mehmood, Energy Expert said the future of the electricity distribution companies (DISCOS) hinged on their ability to adapt and thrive in an increasingly competitive and regulated market. “One of the most pressing needs is to increase electricity sales, which is essential not only for revenue growth but also for the broader expansion of our energy sector. Every DISCO stands to benefit from selling more, but achieving this requires a shift from the status quo.
To navigate this transition effectively, DISCOS must embrace a business-as-usual scenario that involves reimagining their operations. This means considering what value-added services can be introduced to enhance customer satisfaction and loyalty where KE stands out,” he said.
DG PPIB, Ameer Adil said the power prices become affordable during competitive markets, whereas market liberalization is under discussion as third party would be allowed in this regard while considering purchasing power of our community.
Selina Irfan, Energy Expert said the transmission lines are expensive and government has to do it but the government was facing paucity of funds. She emphasised that districted generation off grid solutions were necessary to go carbon free as Pakistan is part of CBAM under which every business will have to follow cross border laws limiting carbon emissions in production lines.
The seminar ended with a strong affirmation of privatization as a critical strategy for the future of the power sector. Experts unanimously highlighted the notable enhancements in K-Electric’s performance following privatization and recommended a similar and well regulated model for other DISCOs to boost operational effectiveness and financial independence.