The privatisation conundrum

October 22, 2023

Privatisation plans are in place for the electricity supply companies

The privatisation conundrum


he privatisation of electricity distribution companies is on the priority list of the Privatization Commission. Pakistan has promised the donor agencies that it will fast-track the privatisation process.

The LESCO, the IESCO, the GAPCO and the FESCO are relatively better-managed companies in the power system being considered for privatisation. Recently, a team of World Bank officials met with (Caretaker) Minister for Privatisation Fawad Hasan Fawad, in Islamabad to discuss the government’s privatisation policy with a specific focus on the DISCOs.

Lahore Electric Supply Company is the only electricity distribution company currently serving multiple districts (Lahore, Okara, Sheikhupura, Nankana Sahib and Kausr). It is also one of the better managed DISCOs in the country. Still, it is a loss-making entity and its line losses have remained above the targets fixed by the NEPRA. The LESCO reported a loss of Rs 9.3 billion in 2021-22. The company, on average, recovers 98 per cent of its bills.

The LESCO was organised in the year 2001 as a part of unbundling of the WAPDA system. Before this, it was known as the Lahore Area Electricity Board. It then had 68 132 kV and 14 66 kV sub-stations. In the year 2013-14, there were 134 132kV and seven 66kV sub-stations.

Privatising power sector companies is an uphill task because of the numerous in-built deficiencies and institutionalised corruption. No one wishes to buy an unprofitable organization if it cannot be turned around. Interestingly, the government seems unwilling to part with these companies, a senior official and policymaker in the Ministry of Energy (Power Division) reveals on the condition of anonymity.

The LESCO is too large an organisation to be privatised in one go. Plans are afoot to privatise its operations in the more efficient regions. However, retaining only the most inefficient regions will make it harder to manage the company. The losses might balloon up and defeat the stated purpose of privatisation.

The issue of retaining the current workforce is also being debated. The buyer might not be willing to deal with the unionised labour. Unions in public sector enterprises have been an issue. Militant unions have almost vanished in the private sector. Many issues need to be resolved before the company can be offered for privatisation.

The Ministry of Energy (Power Division) has recently accelerated the privatisation process for the LESCO). The company has provided the balance sheet and details of its assets to the Power Division, Due to continuous financial deficit, line losses and non-payment of bills, the government has decided to privatise the DISCOs including the LESCO. However, in June this year, the LESCO implemented a privatisation plan of its own and decided to hand over the distribution of electricity bills to the private sector.

Privatising power sector companies is an uphill task because of the numerous in-built deficiencies and institutionalised corruption in these companies.

Speaking on condition of anonymity, a LESCO official informed this scribe that the outsourcing of the distribution of bills was approved by the PEPCO. It was decided that the distribution of bills of the company’s South Circle would be handed over to the private sector. The official added that there was a plan to outsource the bill distribution as a pilot project in the South Circle. However, under this plan, the distribution of bills in the DHA, the DHA East, Kot Lakhpat and Gulberg divisions was to be done by the private sector.

The official said that the LESCO had received a letter from the PEPCO in July (the letter was sent to all-electric supply companies) asking them to provide the records regarding balance sheets and liabilities. A one-month timeline was set for this task.

The official added that the balance sheet had been sent to the Power Division. It contains not only the details of the company’s accounts but also details of its assets.

“The company has also sent the details of arrears of payments to the WAPDA, the NTDC, the PEPCO. These departments owe Rs 14 billion to the LESCO. Similarly, details of subsidies received by the company and cases pending in the courts have also been sent to the Power Division. Details of bills due for running and dead defaulters have also been sent,” he added.

A meeting of the Senate Standing Committee on Privatisation was held at Parliament House recently. Senator Shamim Afridi chaired the meeting. Issues taken up entailed the Privatisation Commission Annual Report and briefings on the LESCO Privatisation Programme.

The committee was informed that the process was approved by the Council of Common Interests and initiated to reduce losses of each DISCO to the level allowed by the NEPRA and improve quality of service delivery and consumer satisfaction.

The committee stressed the need for engaging the private sector to make the process more transparent. The committee was informed that the Privatisation Commission was unable to do much due to the provincialisation of the matter. The committee stressed the need to expedite the process.

The official said the privatisation process at the administrative level was expedited after the appointment of Chaudhry Muhammad Amin as LESCO CEO. He said a decision had been taken to appoint key officers from the private sector.

The writer is a senior Lahore-based economic reporter at The News International

The privatisation conundrum