Privatization in Energy Sector of Pakistan

Topics: Transaction cost, Electricity generation, Government Pages: 20 (6245 words) Published: June 25, 2013
Abstract:
The electric power sector in Pakistan is growing faster. However, the demand in Pakistan is growing even faster than the supply and therefore power shortage has become a serious problem. The problem is compounded by inefficiency of electric power sector. Moreover there is underpricing, subsidizing, overstaffing and inadequate maintenance. Like many other developing countries, Pakistan has also opted for "privatization" in the form of transfer of ownership as the first best solution. However, a wide range of literature argues that such type of privatization in the case of electric power may not lead to miracles. The present article attempts to identify causes of implementation and failure of Privatization Reforms in power sector of Pakistan. We will try to find out tentative answers from Institutional and Transaction cost theory of management of their reasons of implementation and failure. It is noted that the privatization of electric power sector in Pakistan, as pursued now, may not resolve the problems of this sector. It may ease short-run financial constraints but it may also create a number of long-term problems such as inappropriate planning, greater energy dependence and insecurity. It is also noted that current problems stem primarily from institutional and organizational constraints faced by public sector power enterprises. The key issue may not be a choice between public or private ownership but to determine an appropriate reform package based on either public/private or a mixed ownership structure that encourages greater private involvement and functions well in the specific environment of Pakistan.

Introduction:
Like many other developing countries, Pakistan announced a policy shift towards the private sector in early 1980s which was later enhanced by the structural adjustment program under the supervision of the IMF and the World Bank. Consequently, private sector investment increased from 26 percent to 51 percent of total investment during 1978-88. However, most of the privatized companies were in manufacturing industry. Privatization in the banking, electricity, telecommunications and transport sectors was delayed because of lack of procedural clarity, fear of unemployment among workers and the consequential emergence of private monopolies resulting in increase in prices. Recently, Pakistan has expanded the scope of its privatization program to include infrastructure also with electric power sector at the top of the agenda. The policy objective is to improve efficiency by establishing a healthy and competitive infrastructure sector. Privatization of electric power sector expected to spur economic growth and reduce fiscal deficits. But there are contrary opinions. It has been argued in a number of studies that privatization of electric power may not lead to miracles. Even though it may ease short run financial constraints, but it may also create a number of long-term problems such as inappropriate planning and greater energy dependence and insecurity. Even short-run financial benefits may be costly if the sector is not properly regulated and supervised. Therefore, the key issue may not be a choice between public and private ownership, but to determine an appropriate and suitable reform (either public or private or a mixed public-private structure) which could work better in the specific environment of Pakistan. This article argues that the privatization of electric power in Pakistan, as pursued now, may not resolve the problems of this sector. Tentative answers will be tried to find out from management theories (Institutional + Transaction Cost).

“ELECTRIC POWER SECTOR IN PAKISTAN AND PRIVATIZATION REFORMS” The public sector is usually composed of organizations that are owned and operated by the government. This includes federal, provincial, state, or municipal governments, depending on where you live. Privacy legislation usually calls organizations in the public sector a public body or...
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