Opening up Karachi to more electricity companies; a hasty decision?

The National Electric Regulatory Authority (NEPRA) is considering revoking K-Electric’s monopoly and its status as the sole licensed electricity provider in Karachi to allow the entry of new players into the market. Generally accepted wisdom states that competition breeds improvement in quality and performance while reducing price, but whether this will be true in the case of Karachi is something that is still unclear. Some questions that should be considered and answered by policymakers and regulators before finalizing this decision are:

According to the NEPRA notice inviting comment and suggestions, the license is being amended because of excessive load-shed, excessive billing and safety issues, and because the power utility has not expanded its distribution network to include everyone in its service area. However the same is not backed by any comparison or numbers and if we look at the state of industry, NEPRA itself has acknowledged KEs much improved performance against all DISCOs in loss reduction, load-shed reduction and expansion of consumer base. More importantly the new model proposed by NEPRA is also not supported by any model or details transition plan.

Has the competition model proposed by NEPRA been successfully implemented in any other city of Pakistan? Karachi is the country’s economic hub contributing over 20% of national GDP. By virtue of its size, population and its place in the national economy this city is not a place where unproven experiments should be conducted with a service as essential as electricity. In the event that desired results are not achieved, the socio-economic implications for millions of residents, as well as Pakistan would be severe.

Will the new entrants only be granted licenses to generate electricity and will K-Electric’s existing transmission and distribution network continue to be used? How well thought through is the decision to further neglect the already neglected and bottlenecked transmission and distribution network in the city, and the country and favor generation, considering that there is already a supply glut in the country, with citizens making capacity payments through high energy rates? If more generation is going to be added, will it not lead to even more idle capacity, and more capacity payments? If this is what the new proposal envisages, then why not simply sell more electricity to KE, since NTDC already does that.

As a regulator and policy-maker, NEPRA must also consider the social impact of its decisions and not benefit the rich at the expense of the vulnerable communities. The present utility model cross-subsidises customers ensuring that the revenues earned from the more privileged customers go towards investments that benefit the poor. Any commercial and unregulated new entrant will cherry-pick the best customers, ignoring those areas where billing is an issue and power theft is high. Without the cross-subsidy and accounting for the losses in areas like Gadap and Korangi, will increase power costs in these areas beyond the residents ability to pay - will these areas then be deprived of a basic human right or will there be a continually widened gap of service levels between the rich and poor?

And who will cater to public sector customers such as the CDGK, KMC, KDA, KW&SB, all of which are essential to the city, but not the best when it comes to paying bills? Will the new entrants serve these clients as well? Considering there are so many fundamental questions that remain unanswered it is clear that the decision to modify K-Electric’s license is it being pursued in haste because of public outcry. If NEPRA’s objective is to only silence that outcry in the short-term, as opposed to actually bringing about an improvement in Karachi’s electricity supply challenges through sustained investments then it is essential that this proposal goes back to the drawing board, instead of being implemented in its current half-baked form. Decisions made out of political expedience rarely yield positive results in the long-term.