Amir Saeed

An effective market competition among power suppliers is crucial to improving efficiency, accountability, and service delivery in the electricity sector.

Talking to WealthPK, Afia Malik, an energy expert, said power sector privatization is often presented as a panacea for its chronic inefficiencies, but she warned that without private competition, such reforms may fall short of their objectives.

Aafia pointed out that privatization is not a novel idea; it has been debated for years as a way to improve efficiency in the distribution sector. However, she questioned why the focus is on privatizing relatively better-performing companies like Lahore Electric Supply Company (LESCO) and Faisalabad Electric Supply Company (FESCO) instead of addressing deeper structural issues.

She noted that while the recent reforms have reduced interference from the line ministry and moved towards decentralization, true autonomy for the distribution companies’ CEOs is still lacking. She emphasized that privatization will not succeed unless tariff and regulatory policies are aligned with the reform goals. A uniform tariff policy, she argued, removes incentives for both public and private entities to improve efficiency.

She was sceptical about the repeated hiring of consultants and lack of progress in actual privatization, stressing that success depends on political will, robust regulation, and clear, enforceable contracts. Drawing on international experience, Aafia observed that privatization has only worked in specific contexts — mainly upper-middle-income countries with strong regulatory frameworks.

She warned that Pakistan must avoid simply transferring monopoly power from the public to the private sector. Instead, she advocated commercialization and gradual private participation, such as listing discos on the stock market and allowing shareholding. She believed that real efficiency gains come from competition, even in a sector considered a natural monopoly.

She suggested unbundling the buyer and retailer roles, issuing separate licenses, and breaking up large distribution companies into smaller, more manageable units. Aafia insisted that the reforms must focus on improving consumer outcomes — affordability, reliability, and service quality — rather than just changing the ownership structures.

Talking to WealthPK, Khalid Rehman, Chairman of the Institute of Policy Studies (IPS), highlighted that privatization without real private competition is ineffective. He asserted that simply transferring ownership from the public to private sector does not guarantee improvement unless consumers have genuine choices among service providers.

According to Rehman, the essence of successful reform lies in creating an environment where suppliers are compelled to enhance performance, reduce costs, and improve service quality to attract and retain consumers. Without competition, privatization becomes merely symbolic, lacking pressure that drives efficiency and innovation.

He further argued that privatization should not be treated as an end in itself, but as a means to empower consumers and foster a responsive energy market. He cautioned that the reforms imposed without considering local needs and governance challenges are likely to fail. For Rehman, private sector participation must be structured to ensure accountability, clear performance benchmarks, and tangible consumer benefits.

In his view, the lack of competition fundamentally undermines reform objectives, and for the power sector to achieve sustainable improvement, privatization must be accompanied by a meaningful market competition.

Credit: INP-WealthPk