Will it work?

Attention: open in a new window. PDFPrintE-mail

Weekly Updates - Editor's Pick

The Economic Co-ordination Committee (ECC) of the Cabinet, under the chairmanship of the federal Finance Minister Dr Abdul Hafeez Sheikh, supported the Water and Power Ministry s proposal to give operational and maintenance control of four power generation companies (Gencos) to private sector for a period of 10 years.

The premise of this decision, supported by overwhelming research and surveys world-wide, is that private sector s focus is on profit maximisation which allows it to take decisions, based solely on their financial aspects, in contrast to a public sector entity that gives greater weightage to public welfare. Integral components of the public welfare aspect of decision-making by the state-owned entities are to ensure that the price of the utility/output is affordable and that there is no retrenchment, even if the entity is overstaffed, which may well be a major contributory factor in its loss-making history.

Waqar Masood Khan, Secretary Finance, while briefing the media on the decisions taken by the ECC revealed that a special committee has been constituted to be headed by Naveed Qamar, the Federal Minister for Water and Power. It would include representatives from petroleum and planning and development and its terms of reference would be to formulate the framework of the 10-year contracts for Gencos in consultation with the National Electric Power Regulatory Authority (Nepra).

The question that arises is whether the composition of the special committee is appropriate. While at first glance, one would be compelled to admit that the selection of the committee members is appropriate, given the mandate of the committee, yet there are many who would express serious reservations. The Minister for Water and Power, it has been widely reported, has engaged in using the ministries that he has headed (since 2007 Qamar has held the portfolio of Privatisation, Finance and recently of Water and Power) as recruitment centres for people from his constituency - a fact that many have argued led to higher costs per unit of output, accounting for high losses. Thus Qamar is not likely to support allowing the managing contractor to layoff people.

Nadeemul Haq, the Deputy Chairman of the Planning Commission, is a well-known supporter of private sector enterprise as an engine of growth - a view supported by the IMF that he served till retirement. Thus he may provide some balance to Qamar s resistance to retrenchment. Be that as it may, Haque looks at the private sector through International Financial Institutions (IFIs) eyes that many a time glosses over local peculiarities and is surely aware of the reasons that the KESC s privatisation, supported by many an IFI, has not been a successful experiment.

Petroleum Minister Dr Asim Hussain has taken some hard decisions and Business Recorder credits him with the decision to equate the price of per unit of energy, whatever the type of the energy (oil, furnace oil, gas). Thus the LPG policy, as approved by the ECC, was the need of the hour.

However, both Naveed Qamar and Dr Asim Hussain must be aware of the fact that unless the inter-circular debt is eliminated for all times to come, no Genco, whoever manages it, would be able to operate at maximum capacity. Thus the first rule of business for the special committee must be to ensure that the circular debt is eliminated.

Waqar Masood Khan also told the press that matters pertaining to how much investment should be made, how much of this investment should involve tariff adjustment and how much return on investment would be allowed will be chalked out by the committee.

It is unlikely that the federal government would cede control over electricity tariffs to a private sector operator for political reasons. But unless this is allowed, together with allowing the new management to take decisions on layoffs of surplus workers, it is unlikely that the government would be able to attract experienced and competent companies/individuals to manage and operate the Gencos.


Courtesy: Business Recorder

Forex open Market rates & comments Archive