Opinion: K-Electric – a private enterprise without competition

Country has surplus LNG that can be diverted to the power utility

ISLAMABAD: Karachi continues to suffer from heat and load-shedding. The National Electric Power Regulatory Authority (Nepra)’s inquiry committee went and came back with its recommendations, putting responsibility on K-Electric once again, something that was obvious all along.

Nepra has promised legal action. The Sindh chief minister has finally joined the protesters after having made several protestations to the federal government.

K-Electric would not move. What is the company’s source of power or why all others are powerless, if not insensitive or incompetent.

I wrote last week that K-Electric had on more than one occasion refrained from utilising its installed capacity and recommended in good faith that its power generation function should be separated and the company should work like other distribution companies.



It is feasible, however, to solve the current problem as it is not a capacity issue, but a fuel supply issue. K-Electric, in order to maximise its profits or minimise costs, would like to rely on gas supplies rather than furnace oil in its steam plants or diesel in its internal combustion engine plants.

Although it is paid for fuel cost differences, its working capital and cash requirement increases while using furnace oil and diesel. A short-term solution is some gas load-shedding for other sectors such as compressed natural gas (CNG) filling stations and captive power plants.

K-Electric can also be coerced into utilising some furnace oil and the federal government can release some cash for prescribed subsidies. Some immediate results could be achieved.



Gas surplus

However, due to lack of coordination within the Ministry of Energy (one would have been better off without such a merger if this is the kind of output), no action has been taken except for Nepra report and advisory.

Nepra and the Oil and Gas Regulatory Authority (Ogra) could not put their act together for joint action and now the former is helplessly waving its advisory regarding gas supply. Sui Southern Gas Company (SSGC) has not even responded to the Sindh High Court’s order to supply gas to K-Electric.

We have mentioned earlier that there is gas surplus in the country. Re-gasified liquefied natural gas (RLNG) and its terminals are under-utilised and capacity payments or fines would have to be paid by the Petroleum Division for failing to lift the contracted quantities.

RLNG supplies could have been diverted to K-Electric and SSGC instead of paying fines and penalties. This is another indictment on the unified Ministry of Energy. For coming months, this should be done, if this could not have been foreseen.

Profit vs public interest

Coming back to K-Electric which is showing remarkable or condemnable mettle and resistance. It proves that public interest has no meaning before the altar of private profitability and its maximisation.

K-Electric wants to make it so worse that the government may hasten to finalise all clearances that are to be given for the sell-out of K-Electric to Chinese investors.

I wonder, if the government cannot handle or has difficulty in handling a relatively less powerful party than the proposed Chinese buyers backed by a very powerful country. I have indicated its political implications as well.

And now finally, let us discuss the merits of privatisation, first of K-Electric and then of all distribution companies in Pakistan. It has been now … years that K-Electric is in private hands.

A cursory cost and benefit analysis of K-Electric’s privatisation does not indicate a positive outcome. Its performance (in terms of cost of generation or transmission and distribution losses) has been wanting if compared with other distribution companies.

Most distribution companies or almost all distribution companies in Punjab have lesser T&D losses than K-Electric after all these years. Whatever improvement in the historical losses has occurred is mostly due to improvement in law and order situation and much less due to performance of the private enterprise.

No competition

As we are seeing the current K-Electric situation, there is perhaps no meaning of private enterprise without competition. Had competition been there, K-Electric would not have behaved in the manner it has been ignoring the public and in their parlance the market.

Utilities and distribution companies are a natural monopoly and public enterprise. This is the lesson that western nations have learnt and have introduced competition at the retail level. The mantra of privatisation of distribution companies has been introduced by international financial institutions. They should re-examine their tenets in the face of objective evidence that has emerged and continues to emerge in such a nasty manner and should stop pressurising the government.

Real losers

Who are the losers; public, consumers and poor public-sector employees? Inefficiency and corruption in the public sector can be dealt with and removed if not totally eliminated by elected representatives, if democratisation and political processes continue and are allowed to prosper.

Higher-level corruption may persist in private regulated enterprises. Bureaucracy and politicians can and usually indulge in not properly controlling private enterprise and allowing undeserved profits.



Overall, I am a supporter of private enterprise, as it is good for democracy, freedom and liberty. However, private enterprise functions under competition. Where competition is not present, there are more vices in private enterprise than good.

Let us hope the Ministry of Energy and the overall government are able to solve the immediate issues on the lines that have been indicated and even more by applying creativity.

Certainly, there are solutions. Time is of essence. I hope and pray that by the time, reader gets to read these lines, an amicable short-term solution is found out and load-shedding significantly reduced, if not totally eliminated. The truth is always in between the extremes around which a compromise solution should be arrived at for immediate purposes. In the near term, RLNG supplies may be diverted to K-Electric.

Here, it may be appropriate to point out how fuel issues could be ameliorated through some induction of renewables like solar at the level of distribution companies.

All kinds of problems may emerge in fuel supply. And the development of local gas resources should receive more attention. K-Electric’s privatisation cannot be undone, but separation of the generation function may reduce the problems.

The government and IFIs may reconsider proposed privatisation of distribution companies until a reasonably competitive environment or alternative framework develops.

The writer is former member energy at the Planning Commission

 

Published in The Express Tribune, April 23^rd, 2018.

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