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Is privatisation the missing link?

In a notable development, the National Electric Power Regulatory Authority (Nepra) has issued 20-year supplier licenses to seven state-owned power utility companies, collectively known as distribution companies (DISCOs).

This decision not only reinforces the continuity of operations within the energy sector but also reignites a critical discourse surrounding the necessity of privatising DISCOs, to replicate the successes achieved in the telecommunications sector. Experts and stakeholders contend that privatisation, in conjunction with the implementation of advanced metering infrastructure (AMI) and meter data management systems (MDMS), could effectively address persistent inefficiencies and pave the way toward a sustainable energy future.

The renewal of these licences prompts inquiries regarding the strategic direction of Pakistan’s energy sector. The DISCOs, which encompass entities such as the Lahore Electric Supply Company (LESCO) and the Islamabad Electric Supply Company (IESCO), have historically faced challenges, including elevated transmission and distribution (T&D) losses, financial inefficiencies, and a deficiency in customer-centric services. Merely prolonging the operational mandates of these state-run entities perpetuates the existing status quo without tackling the underlying issues afflicting the energy sector.

The decision to extend supplier licenses without considering privatisation or structural reforms represents a missed opportunity. The transformative impact observed in the liberalisation of the telecommunications sector serves as a pertinent example; consumers gained greater choices, service quality improved, and the industry emerged as a significant contributor to the economy. The same guiding principles have the potential to revolutionise the power sector.

The telecommunications sector in Pakistan presents a noteworthy case study in market liberalisation. Before privatisation, this sector was predominantly characterised by state-owned enterprises, resulting in limited services and sluggish growth. The introduction of private entities, coupled with effective regulatory oversight, has catalysed competition, fostered innovation, and significantly improved service delivery. At present, consumers have access to a range of operators, enjoy competitive pricing, and benefit from advanced technologies.

A parallel transformation within the energy sector has the potential to enhance service delivery and stimulate innovation. For example, the involvement of private enterprises could facilitate the integration of AMI and MDMS technologies to optimise operations and improve customer engagement. AMI systems allow for real-time monitoring of energy consumption, which not only reduces losses but also enhances billing accuracy. Conversely, MDMS employs data analytics to optimise grid performance and predict demand, thereby ensuring a more reliable supply of energy.

The integration of AMI and MDMS technologies is essential for achieving a sustainable energy future. These systems provide numerous advantages, including, Real-time data generated by AMI systems enables utilities to identify inefficiencies and implement corrective measures in a timely manner. MDMS facilitates the forecasting of demand patterns, allowing utilities to execute demand-side management strategies that mitigate the risk of outages during peak periods. Furthermore, smart meters empower consumers with enhanced visibility into their energy consumption, promoting energy-saving behaviours. Automated systems can detect and prevent electricity theft, which remains a significant challenge within Pakistan’s power sector.

Countries such as India and China have successfully adopted these technologies, yielding substantial benefits. In India, for instance, the deployment of AMI and MDMS has resulted in notable reductions in transmission and distribution losses while improving grid reliability. There is a compelling rationale for Pakistan to pursue similar advancements.

Privatising DISCOs could effectively address several persistent challenges within Pakistan’s power sector. The T&D losses in this sector are among the highest in the region, estimated at approximately 18-20 per cent. These losses primarily stem from outdated infrastructure, electricity theft, and operational inefficiencies. Private operators, motivated by profit, are more likely to invest in modernising infrastructure and implementing rigorous monitoring mechanisms to mitigate these losses.

Many DISCOs currently operate at a financial loss, exacerbated by circular debt and unpaid subsidies. Privatisation would transfer the financial risks to private entities, thereby incentivising them to enhance operational efficiency. This transition would also alleviate the fiscal burden on the government, releasing resources for other developmental priorities. Moreover, state-run DISCOs frequently lack a customer-centric approach, resulting in subpar service quality and consumer dissatisfaction. Privatisation has the potential to introduce competition, which would compel service providers to prioritise customer needs, minimise outages and offer innovative solutions tailored to diverse consumer segments.

A privatised energy sector would also attract domestic and international investment, thereby fostering economic growth. Such investments would not only provide capital but also introduce technical expertise and advanced technologies, contributing to a more efficient and resilient energy infrastructure.

The advantages of privatisation are evident; however, the transition presents several challenges that must be addressed. Resistance from labour unions, regulatory barriers and political considerations frequently obstruct reform initiatives. It is also imperative to ensure a fair and transparent privatisation process to prevent the emergence of monopolies or preferential treatment of certain entities. The integration of advanced technologies, such as AMI and MDMS, necessitates considerable initial investment and a skilled workforce. The government must establish a robust regulatory framework and offer incentives to encourage private sector participation in adopting these technologies.

To achieve a sustainable and efficient energy sector, Pakistan must undertake decisive actions. Specifically, the government should formulate a phased privatisation strategy, starting with the least efficient DISCOs. This would enable policymakers to incrementally address challenges and refine the process based on insights gained during implementation. Nepra should assume a proactive role in supervising privatisation efforts, ensuring transparency and preventing anti-competitive practices.

The regulatory framework must also stipulate the mandatory adoption of AMI and MDMS technologies. Educating stakeholders, including consumers and employees, on the benefits of privatisation and advanced technologies is essential for garnering support and alleviating resistance. Moreover, the government should invest in training programmes to equip the workforce with the necessary skills to manage and operate modern energy systems effectively. Providing tax incentives and subsidies to private entities that adopt AMI and MDMS technologies could expedite their integration into the energy ecosystem.

Nepra’s decision to grant 20-year supplier licences to state-run DISCOs highlights the necessity for a more comprehensive approach to energy sector reform. Although this decision ensures continuity, it fails to address the systemic inefficiencies affecting the sector.

Privatising DISCOs and incorporating advanced technologies such as AMI and MDMS could revolutionise Pakistan’s energy landscape, similar to the transformation witnessed in the telecommunications sector following liberalisation. The way forward requires political will, thorough regulatory oversight, and a commitment to embracing innovation. By implementing these strategies, Pakistan can establish a sustainable, efficient, and customer-centric energy supply, thereby laying the groundwork for long-term economic growth and development.

Hina Ayra, "Is privatisation the missing link?," The News. 2025-01-22.
Keywords: Economics , Economic growth , Tax incentives , Privatisation , Investment , Pakistan , MDMS , AMI