Power companies at a standstill

Prime Minister Nawaz Sharif has directed the floating of shares of the power generation and distribution companies on the stock exchange, effectively stopping their strategic sale, which was one of the government’s commitments to the IMF. In its zest to secure billions from the Washington-based lender, the government had promised structural reforms and the eventual strategic sale of these companies in a bid to launch the recovery of the energy sector. Inefficiency, coupled with corruption and lack of managerial skills, has meant that power companies are now faced with losses that have made it difficult to manage the energy sector. Hours-long power outages have disturbed daily life and put the economy in a perennial low-growth mode.

Hence, it made sense to revamp, restructure and hand over strategic control to efficient managers. However, if the intention was not to put these up for strategic sale, then these three years should have been spent in rectifying basic issues these companies face. The government has done neither. So when one hears that shares of these companies will be floated on the stock exchange, there is skepticism. If control isn’t handed over, investors will not want a stake in the company even if liabilities are wiped clean since more losses will be in the offing due to the intrinsic inefficiencies these companies are plagued with. Handing over strategic control isn’t a path the government wants to pursue since it will result in massive layoffs, owning up billions in losses that would raise the budget deficit and ending up with higher power tariffs. So what choice does the government have? After three years of empty promises made to the public and the IMF, it seems not much would be achieved in the short time the PML-N has left. Structural reforms have been implemented at a snail’s pace and in most cases none at all. If the government can’t keep its commitment in return for billions of dollars from the IMF, there is very little chance it would keep its promises to the public.

Published in The Express Tribune, July 23^rd, 2016.

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