Fix the structure

Re-nationalisation of K-Electric will not make life better for anyone in Pakistan

When it comes to the nation’s electricity supply, the people of Pakistan have learnt to be grateful for the smaller mercies, so perhaps we should be grateful now that the Cabinet Committee on Energy, chaired by Prime Minister Nawaz Sharif, has definitively ruled out the re-nationalisation of K-Electric, the nation’s only privately-owned utility company. That this absurd notion was even brought up is baffling. What purpose would be served with the re-nationalisation of the only electricity company in the country that has systematically reduced its losses and improved service quality to the people? And for those who were advocating this preposterous policy, we ask the following: which state-owned utility company has performed better than the privately owned K-Electric? The truthful answer, if we allow ourselves to be honest enough, is that despite a highly challenging operating environment, K-Electric offers better service to more of its customers than any other state-owned company. Re-nationalisation, in short, would serve only to deprive the one city with a competent utility management team of the benefits of a well-managed electricity distribution company. It would not make life better for anyone in Pakistan.

The truth is that it is far too easy to demonise businesses, even ones that abide by the law and deliver quality service to their customers. It is far harder to address the simple fact that has rendered Pakistan’s energy sector — and by extension its economy — dysfunctional: through a combination of theft and bad management, the energy sector is simply not capable of serving the growing needs of the country. The reason is simple enough. Despite rapidly growing demand, it is simply not profitable enough for most investors to deploy their capital towards supplying electricity to Pakistan’s economy. As a result, we have had chronic underinvestment in the national grid, which has fallen into disrepair and can no longer keep pace with the nation’s demands.

There should be absolutely no doubt in anyone’s mind that there is no magic bullet that can fix the problem of power cuts in Pakistan. The problem is simply too intractable — the product of decades of corruption and mismanagement — to be solved overnight, or even in a matter of months. Solving the power crisis is going to be a long slog. Re-nationalising K-Electric is only one among the many asinine ideas that have been floated as some sort of quick-fix to the problem. Even those who advocate them cannot possibly be sincere in their belief that any of them will work.

When it comes to addressing the long-term structural causes of the outages mess, the government’s actions leave a lot to be desired. To be sure, Finance Minister Ishaq Dar has managed to take advantage of the opportunity presented by low oil prices to reduce government subsidies on electricity, but he has done so through temporary surcharges rather than a permanent reduction presented on the floor of the National Assembly as part of the Money Bill. Not only is that measure less democratic, it is also a less durable solution to one of the most chronic of problems facing the energy sector.

On the larger, more difficult problem of electricity theft, the government appears to be taking no action at all. Far from going down as the result of a crackdown, electricity theft rates at most state-owned power distribution companies have actually got worse in the first two years of the Nawaz Administration. No investor will go through the expense of setting up a power plant costing hundreds of millions of dollars knowing that a quarter or more of the electricity it will produce will be stolen. And no amount of tinkering with the tariff formulas is going to be sufficient to compensate for that loss. The government would do well to realise that the way to fix this problem is to focus the entirety of its attention on cracking down on electricity theft. Everything else is just a charade that will yield no tangible benefits, economic or electoral.

Published in The Express Tribune, June 28^th, 2015.

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