Privatization of WAPDA-Workers and Consumers Concerns

8/6/2019 Privatization of WAPDA-Workers and Consumers Concerns

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Privatization of WAPDA:Workers and Consumers Concerns

And the

National Concerns

By: Mazhar Arif


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C O N T E N T S

1- Introduction

2- Privatization in Pakistan

2.1 Rationale for privatization3- Privatization of power sector

3.1 IPPs and allegations of bribery3.2 Army in WAPDAworkers union suspended3.3 Regulation3.4 Role of IFIs in power restructuring / privatization

4- Questioning the idea of privatization

4.1 The case of KESC, Pakistan Steel Mills and PTCL

4.2 Privatization: Feast of vulture capital4.3 Management problem4.4 Consumption patternsa policy issue

5- Privatization of utilitiesa failure

6- Social dimensions and impact of privatization on workforce6.1 Employment6.2 Industrial relations6.3A participatory approach--the necessary connecting thread

7- Privatization and democracy7.1 Pressures on Democratic Institutions7.2 Multilateral bias

7.3 Cronies and corruption7.4 Perversions of justice7.5 Human rights and trade union rights7.6 Loss of control7.7 Secrecy7.8 The Democratic Backlash

8- Resistance against WAPDAs privatization

8.1 WAPDA workers protest campaigns8.2 Demand for inquiry commission

9- Power Sector and Consumer Concerns

9.1 Pricing & Tariff Concerns

9.2 Universal Access to Basic Services9.3 Regulation

10- Privatization and national concerns10.1 Control on national economy10.2 Regional inequalities10.3 Division of royalties among federating units

11- Recommendations12- References


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1- Introduction

Residents of Karachi woke up on one morning in March, 2008, to a shock with the entire

city without power, thanks to the Water and Power Development Authority (WAPDA)which shut down its power supply to the Karachi Electricity Supply Corporation (KESC)citing lack of payment of outstanding bills. The resulting blackout was the worst that thecity has seen in years -- but more shocking was the manner in which the country'scommercial and business capital was treated by WAPDA. The breakdown thus came as aresult of problems between the two companies. But the reality is that due to suchdisputes, it is ordinary citizens who suffer most.

The KESC chief had already warned that would be the case, while Karachi's residentsrecall the terrible months last summer when prolonged shutdowns led to riots, protestsand despair across the sizzling city. Explaining the shut down, the KESC managing

director admitted that WAPDA had a rightful claim of Rs 34 billion which KESC had topay but could not because the federal government was not paying KESC its dues.WAPDA had warned that the supply would be cut but KESC did not expect a sudden andtotal switch off.

A leading English newspaper while narrating the troubles of Karachites says this callousattitude though needs to be rectified, the fact also is that KESC itself is in a mess, theRs1.5 million per month being paid to a retired general of the Pakistan army to run theutility, notwithstanding. KESC's privatization has apparently failed miserably as thecompany has gone into billions of losses in a very short time, although it had beenhanded over to the buyers with a clean balance sheet. The company has not added evenone megawatt of new power and its management, run mostly by retired people, has failedto show any promise or hope.

There is a great deal to be answered for, and some of these questions will undoubtedlycome up in the new parliament. The new governments at the centre and in Sindh willhave to grapple with this crisis from day one, especially with summer approaching. Whilethere is only so much that can be done in the shorter term, solutions will have to be found-- for the sake of Karachi and the national economy as well. For instance, the possibilityof cancelling KESC's privatization and reversion to WAPDA control should be seriouslyconsidered. The utility's transfer to private ownership was not without controversy, likemany other privatizations of the Shaukat Aziz government. The new owners promised alot but have quite clearly delivered nothing.

This is in everybody's interest and if there is any backlash from the World Bank, IMF,Asian Development Bank or any other lender, it should be properly handled. The heavenswould not fall if this was done in the country's best interest and for the sake of law andorder in a city which needs it most. (1)


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Just after two months, perhaps in response to the woes of Karachites and people from allover Pakistan, WAPDA came under fire in the Senate over what lawmakers called itslavish spending and deficient planning and abetment in power theft which has caused theworst power shortage in the countrys history. Speakers from both government andopposition sidesseverely criticized WAPDA management and called it a highly

inefficient and mismanaged organization and said the organization was responsible forrecord line losses of 50 to 60 per cent, much more than the internationally-accepted limit.

Minister for Water and Power Raja Parvaiz Ashraf warned what he called the black sheepin WAPDA and said the government would not tolerate slackness, misappropriation andmismanagement on the part of WAPDA management. WAPDA is supposed to serve thecountry and its people and I will not allow the people usurping the rights of the people tostay in the organization. Saving one per cent of line losses would mean a saving ofRupees four billion. We are trying to put in place a system to nab big fish responsible forline losses as we want to restore the status of WAPDA as a profitable and an idealorganization which it once used to be, and every effort will be made to curb electricity

theft and to minimize line losses. The present crisis has not erupted in a day or a month; itis the result of bad planning and management of several years, The minister said. (2)

The law makers, the minister and the press render the mismanagement andmisappropriation responsible for the power mess in the country. The minister expressedthe governments resolve to make WAPDA a profitable and ideal organization it onceused to be. Perhaps, it was first time after many years that none of them talked ofprivatization of the utility organization.

2- Privatization in Pakistan

Privatization of state owned entities (SOEs) has been pursued in Pakistan since 1988, andinvariably all the governments have promoted the concept of privatization. Though anumber of government policies were reversed by two alternating governments of NawazSharif and Benazir Bhutto, yet the privatization policies were probably among those fewpolicies which enjoyed consensus and were enthusiastically pursued.

Privatization of economy was systematically initiated by the Nawaz Sharif government inearly 1991. In 1991, Privatization Commission for Industries was set up by thegovernment to regulate and manage the process of privatization of stat-owned industriesand enterprises. A year later in 1992, Privatization Commission for Power Sector wasestablished.

Next year in 1993, Expanded Privatization Commission was formed, which was set up toundertake privatization of public sector including manufacturing, services, oil and gas,telecommunications, power generation and distribution, transport and communication.The previously formed two Privatization Commissions were merged into this expandedCommission. However, the powers of the Commission were limited, and variousexecutive bodies of the Federal Government continued to exercise their power over it.Later, a Cabinet Committee on Privatization was also established, which worked till


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1998. However, in September 1998, Privatization Board of Pakistan was formed inaddition to the Privatization Commission. The Board was headed by the prime minister.The Board functioned for a year till September 1999. However, the EconomicCoordination Council of the federal cabinet as well as the cabinet too played their role inthe privatization in Pakistan decision-making processes.

The Shaukat Aziz government introduced a new Privatization Law and instituted a newMinistry for Privatization. The law has converted the Privatization Commission into acorporate body, independent of any federal Ministry. Before that, there was no specificprivatization law in the country, and the past privatization steps had been taken without it.The law covers important issues such as procedure, litigation, and the usage ofprivatization proceeds. What is note-worthy in the law is the fact that it makes itobligatory for the federal government to spend 90 per cent amount generated fromprivatization for debt retirement, and spend the rest 10 per cent for poverty alleviation.The newly instituted Ministry of Privatization has the responsibility of privatizing around49 public enterprises in banking, oil, gas and electricity sectors, in next two years.

It is important to point out here that various countries have pursued privatizationprograms for different reasons. In Pakistan, however, shares in profitable state-ownedenterprises were sold in order to raise government revenues.The stated goal of thegovernment was thus to raise the revenue for debt retirement. However, the privatizationproceeds have not been spent for the purpose for which privatization was actuallypursued, and the revenues have been spent elsewhere. (3)

2.1 Rationale for privatization

The central argument for privatization revolves around efficiency. It is argued thatgovernments have grown too fat to effectively handle the delivery and provision of publicservices. It is also asserted that the decline in the quality and performance of public sectorservices is largely due to politicization. These departments also suffer from bureaucraticirregularities, official arrogance, and corrupt and socially irresponsible practices whichcause major obstacles to efficient provision of services. According to the proponents thiscan be put to end by de-bureaucratization, deregulation, and involving the private sectorin the provision of public services. Privatization is seen as a panacea for these ills as,according to them, private concerns are more efficient in production of goods and inservice delivery.

It is claimed that privatization also result in policies and practices which are sensitive toconsumer concerns. It has been asserted that in the privatized economy, not only thequality of goods and services improves, but the market also becomes responsive toconsumer needs and demands. (4)

3- Privatization of power sector

The Government of Pakistan formulated a power policy in 1994 to permit the privatesector to invest in the power sector and ensure sufficient generation capacity. The policy


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allowed full flexibility to independent power producers (IPPs) to bring capacity on line asquickly as possible at predetermined power purchase prices. The government guaranteedimplementation, fuel supply, and power purchase. By 2001, the private sectors share ofinstalled capacity reached 5,551MW, all of which were oil-fired thermal plants.

Because of the power sectors poor operational and financial performance since the mid-1990s, the government decided to restructure the sector as the government claimed froman inefficient state-controlled monopoly to a competitive, market-driven system. Its firststep was to amend the WAPDA Act in December 1998, which allowed the establishmentof the Pakistan Electric Power Company (PEPCO) for unbundling of the WAPDAsPower Wing into eight distribution companies (formed from existing area boards); threegenerating companies (comprising 11 of Wapdas generating plants); and the NationalTransmission and Dispatch Company (NTDC). The restructured power sector was toconsist of (i) competitive generation with independent system operators and a bulk powermarket; (ii) unbundled, open, and undiscriminating access to transmission anddistribution services; and (iii) an independent regulatory body for effective market

governance.

The second step of the governments plan was to (i) sell PEPCOs generating anddistribution companies and (ii) privatize Karachi Electric Supply Corporation (KESC).The transformation of the power sector into a privatized electricity market was expectedto take a number of years and would comprise two phases. In the first phase, the systemwas to be a single buyer type where all electricity would be bought by NTDC fromvarious private and public generating companies for resale to the distribution companies.In the second phase, the system was to be of a multiple buyer and seller type where thedistribution companies and large consumers would have a choice of which generatingcompany to buy from. (5)

3.1 IPPs and allegations of bribery

In the early 1990s 16 independent power producing companies (IPPs) were set up inPakistan by multinational companies in partnership with local investors, with the backingof the World Bank. The largest of these was Hubco, the largest company quoted on thePakistan stock exchange; 26% owned by International Power of the U.K. These werebacked by power purchase agreements (PPAs) under which WAPDA had to buyelectricity at set rates. By the late 1990s, WAPDAs finances were in serious deficit, asthe price payable to the IPPs were higher than the price at which electricity was sold toend-users.

In 1997 the then government of Pakistan pursued cases of alleged bribery in relation tothese electricity contracts. Two contracts - one involving Southern Company (USA), andanother involving National Grid (UK) -- were cancelled on the grounds that they hadbeen improperly obtained. In 1998, faced with un-affordably high prices for electricityrequired under the PPAs, the government also brought proceedings for alleged corruptionagainst other IPPs, stating that it would cut the price of electricity agreed under thesecontracts. The main target of these investigations was Hubco. The IMF, the World Bank


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and the UK government all urged Pakistan to drop its corruption case against Hubco. Asa result of all this pressure, the Pakistan government in December 1998 dropped theprosecution of Hubco.

3.2 Army in WAPDA-workers union suspended

A week later, the prime minister instead turned on Wapda, suspended trade unionactivities, and handed over control of energy transmission to the army (this was beforethe military takeover of Pakistan government itself). The union was suspended bypresidential decree, which abrogated the right of the union to operate, even as abargaining agent. One week after the military takeover and the suspension of trade unionsin the organization, the World Bank authorised the IMF to proceed with a US$1.3 billionbailout package for Pakistan, as it was satisfied with the government assurances for outof court settlement of two-year long row with the Independent Power Producers.WAPDA and Hubco finally agreed on a revised price in 2000. (6)

3.3 Regulation

In 1997, the government established the National Electric Power Regulatory Authority(NEPRA). The Authority is responsible for issuing licenses, franchising monopolybusiness, setting and enforcing performance standards and codes of practices, enforcingcompetitive policies, and setting charges for the monopoly parts of the industry. It is alsomandated to protect consumers against monopolistic prices, encourage efficiency inlicensee operations through financial incentives, encourage economic efficiency bypromoting competition, and eliminate cross-subsidies between regions and consumergroups. According to ADB, however,the regulatory agency lacks predictability andtransparency.

3.4 Role of IFIs in power restructuring / privatization

Over the past 14 years, Pakistan has been following a strategy of deregulation,privatization and transformation of its public sector entities (PSEs). The keyshortcomings of Pakistans PSEs, as described by international financial institutions(IFIs) are: Poor governance; Political and bureaucratic interference; Institutionalweakness; and Lack of professional management. In the 1990s, IFIs like the WB, IMFand ADB asked the Pakistan government that the fiscal situation could not improveunless and until the losses from PSEs are substantially curtailed or eliminated, and thatthis was only possible through a massive restructuring of these entities leading to theirprivatization.

In the power and energy sector, the WB and ADB supported the governments plan forthe restructuring and privatization of the energy, oil and gas sectors, and provision of alegal framework to implement the Oil and Gas Reform Program in addition tostrengthening the regulatory framework. The World Bank under the SAL (StructuralAdjustment Loan) approved in 1999 US$350 million for working on the power sector torestore financial viability of Wapda and KESC to ensure line losses are reduced,


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distribution is improved and cross-arrears between energy utilities and governments aresettled. It also envisaged formation of the NEPRA, to regulate the power companies andprovide necessary comfort to investors and consumers. The World Bank was alsoresponsible for converting the various distribution centers of WAPDA into corporateentities and then privatizing them. (7)

4- Questioning the idea of privatization

Daily DAWN in an editorial says the Wall Street Journal (WSJ) has informed its readersthat foreign investors are eager to invest in Pakistan. But the moot point is, where dothese eager beavers want to invest their money? Not in manufacturing or agriculture, oranything with an export bias, but in the stock market and the services sectors likebanking, oil marketing and telecom which create headline-making employment at theprohibitive cost of heavy imports and profits repatriation. That is where most of theforeign investment has gone in the last five years. And those are the sectors the WSJ hasidentified as the target of eager foreign investors. One would agree with the WSJ that in

the last fiscal year ending June 2007, as much as US$ 8.4 billion in foreign investment,including portfolio investment, flowed into Pakistan.

Predictably the WSJ advises the new government to resume the privatization processimmediately if it wants these eager investors to return to Pakistan. The point to beemphasized is this: true it is not the business of the government to be in business. Thisactivity is best done by entrepreneurs who understand the dynamics of demand andsupply and know how to take calculated risks and pay for making wrong calls. Agovernment is not capable of doing all this.

But then some of our own so-called entrepreneurs too have proved incapable of doing

business without a helping hand from the government. They are known to have bloatedtheir profit margins by skimping on taxes and utility bills. One would therefore questionthe idea of privatization. If the family silver is sold to those who make a killing in ourundervalued markets for repatriation purposes, one is only adding to ones currentaccount burden in return for an insignificant improvement in the job situation. Of course,foreign investment flows even in export-oriented manufacturing and agriculture sectorsalso entail profit repatriation but export earnings from these enterprises do contributesignificantly to decreasing ones dependence on foreign debt and reducing pressure onthe current account while generating significant employment opportunities in the process.

Pakistan has achieved visible comparative advantages in cotton, textiles, surgical goods,sports, leather, cutlery, citrus and mango production. But many of our rent-seekingentrepreneurs have so far failed to exploit these advantages to enter high-end globalmarkets for these goods. Also, Pakistan has reached the frontier of its extensive farmingstrategy, and now needs to re-orient its agriculture sector towards higher value-added(and less water-intensive) crops. This is where foreign investment would greatly help. (8)


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4.1 The case of KESC, Pakistan Steel Mills and PTCL

KESC

The best way to privatise any loss-making public enterprise is to sell it on an as is where

is basis even if it means selling it at a throwaway price. But never ever should it be soldto a party which does not have the professional, technical and management skills to runit, no matter how burdensome it has become for the sellers budget. This aspect waswoefully ignored while privatising the KESC. The utility was sold to a group that had noprevious experience of being in similar business. The foreign buyer, under the name ofKES Power Ltd, a company incorporated in Caymen Islands, comprises 60 per centshares by Al-Jomaih Holding Co. and 40 per cent by National Industries Holding ofKuwait through its subsidiary Denham Investment Ltd created in 2005 especially for thepurpose. The group engaged Siemens of Germany as operations and maintenance (O&M)contractor to the KESC. As is well known, Siemens are only the manufacturers andsuppliers of power-generation equipment, and have no O&M contracting experience in

the area. Siemens are out now but the inexperienced owners are still there and the KESCis now being managed by a retired general with no experience of running a power utility.(9)

Pakistan Steel Mills

The Supreme Court of Pakistans decision regarding cancellation of privatization ofPakistan Steel mills proved apprehensions of many that it was the biggest scam in thecountry. Earlier, representatives of labour, political, social and human rightsorganizations expressed their strong reservations over the process of the privatization ofthe Pakistan Steel (PS), and described the sale of the national asset as the worst exampleof loot of national asset.

They pointed out that the Rs300 billion worth concern had been handed over to theprivate sector parties at a throw-away price of Rs21.75 billion. They claimed that under apre-planned conspiracy, it had been handed over to some favourite parties. They allegedthat it was already decided to hand over the PS to a consortium of Russias MagnitogorskIron & Steel Works Open JSC, Saudi Arabia-based Al-Tuwairqi Group of Companiesand a local firm Arif Habib Securities whereas the bidding process was for itsprivatization was just an eyewash. They wondered that the auction, which thePrivatization Commission had taken one whole year to prepare for, lasted just 30minutes.

They pointed out that it was only a day before the auction was held, that a $130 millionsteel factory, Al-Tuwairqi Steel Mills, was inaugurated and a piece of 220-acre land wasobtained on rent from the PS for the new concern. They added that 45 million cubic feetgas and 180 megawatt electricity was also sanctioned for the group. They quoted an ex-chairman of mills, Haq Nawaz Akhtar, as saying that the PS would have fetched a higherprice even if sold as scrape.

They said that only two days before the auction, the Al-Tuwairqi Group had signed Head


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of Terms (HoT) with the Sui Southern Gas Company for the supply of 45 million cubicfeet natural gas for 10 years and the contract was extendable for another 10 yearsThe said that before the privatizing of the PS, all bank loans outstanding against the millshad been paid off so that the new owners did not have any liability. In this regard, theyadded, the last instalment of Rs2.5 billion Habib Bank loan had been cleared by the

government.

According to the PS finance director, the mills generated Rs26.1 billion revenue in 2000and its pre-tax profit stood at Rs 4.85 billion. They recalled that on Oct 25, 2005, PSchairman Gen Abdul Qayoom addressed factory workers and announced that in the year2004-05, the mills had generated Rs 31 billion revenues and its pre-tax profit was Rs10billion. He had quoted the tax amount paid to the government at Rs8.9 billion.

The labour leaders of PS point out that present value of the PS land, at the current rate ofRs 20 million per acre, is around Rs92 billion whereas the mills other assets have beenestimated at more than Rs150 billion. Furthermore, they add, that the purchasers were

given an inventory of Rs7 billion kept ready in stores, besides finished products worthmore or less the same amount. They claim that the PS is maintaining a productioncapacity of 98 per cent and its profit is on the increase every year. They question thejustification for the sale of the PS when the factory is functioning well, its workersmaking no major demand and the mills paying over Rs9 billion per year tax. (10)

PTCL

The Pakistan Telecommunication Company Limited (PTCL) management has cut thelocal call duration from five to two minutes between 8am and 9pm. And from 9pm to8am the call duration is four minutes. The system has been enforced from April 1, 2008,which means a 10-minute local call will cost a customer Rs10 plus tax. While the reducedlocal call duration is a rude awakening for the companys subscribers, the PTCL unionsays the new packages are actually meant to make up for the huge deficit of over Rs9billion the company is facing.

Those who do not read newspapers are not aware of the latest cut on the local callduration. Most of the housewives are in the habit of making long (local) calls to theirclose relatives and friends everyday. They will learn about the cut only when they receivetheir April bills in May. According to PTCL Union Action Committee Secretary-GeneralMalik Maqbool Husain, fleecing customers appears to be the only option the PTCL isleft with to make up for its deficit. The switching of its 937,000 subscribers to othernetworks in a year or so is also a result of bad policies of the management.

Maqbool said when the present management took over the company two years back, thePTCL was in Rs29 billion profit. Apart from the local call duration reduction, thecontroversial Pakistan Package imposed on the PTCL subscribers three months ago hasnow been made a regular feature with some changes to the original scheme. Under the(original) package, inter-city calls from (PTCL) landline to landline and V-phone werefree up to 5,000 minutes on a monthly charge of Rs199 and taxes. The subscribers, whowere not interested in it, had been given an option to deactivate their line (from the


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Pakistan Package) by calling the PTCL helpline 1236 during the period (three months).Much to the surprise of the subscribers, the management has reduced free time from5,000 to 2,500 minutes from April 1.

Where the management is applying novel methods to its landline subscribers to

generate maximum revenue, it did not spare even those using Vfone and Internet.The management had offered three packages for Vfone users and made one mandatoryon them in case they dont choose one of them till March 31, 2008. However, from April1, Vfone Kafayat package had been imposed on those who did not choose the other twowith a line rent of Rs7 per day -- call from Vfone to PTCL (local) Rs0.99 per minute,Vfone to PTCL (NWD) Rs2 per minute and Vfone to mobile Rs2.5 per minute.The PTCL after privatization has retrenched about 30,00 workers under so-calledvolunteer scheme. (11)

4.2 Privatization: feast for vulture capital

The government or the Privatization Commission (PC) has so far made no publicannouncement on negotiated sales. Apparently, the government is mulling over the issue.But with the international donors always pressing for hurrying up privatization, such apossibility cannot be ruled out.

If the market does not have the appetite for state units, an ill-timed privatization will mostprobably be seen as a distress sale by sole individual buyers. Such moves may benefit theforeign vulture capital and may not lead to genuine privatization. The country abounds inexamples where privatization was done to strengthen crony capitalism and not on thebasis of commercial merit. And this time, it may turn out to be a feast for vulture capital.

After the 1997 east Asia crisis, many companies were sold to corporates outside theregion under the IMF and the World Bank goading. These were distress sales.

So far, privatization in Pakistan has not been an unqualified success. A study byconsultants of the Asian Development Bank shows that only 22 per cent of theprivatization units (first phase of sell-off) were doing better and performance of 34worsened. On the whole, the objective of privatization has not been achieved. And in thechanging international scenario after 9/11 and specially in the context of threat of war inIraq, the sale of strategic assets has implications for the economic sovereignty. (12)

4.3Management problem

Privatization in Pakistan has taken a quantum change over the past 15 years but at presentits rationale seems to be quite murky. It is imperative to understand the reason detere' ofthis activity in the West- which in fact would be the UK of Margaret Thatcher. It wasvery simple then. It was thought that the government's size stood bloated just because ofthe huge public sector and that pruning of the same remained the only option left to stopthe continuing losses.


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Privatization is being pursued in the SOEs on account of perceived (and also actual)mismanagement and overstaffing, inappropriate and costly investments made in the pastand being made at present, poor quality and inadequate coverage of services, high debtand fiscal losses and production and profits levels that are well below potential.

Correctly, but without taking any cue from it, the Privatization Commission alsounderstands the reason for the continuous decline of the SOE attributing all this to theundue pressure on these enterprises by decision makers, the appointment of favourites totop-management positions regardless of their qualifications and the red tape andcomplicated procedures peculiar to the government. It then goes on by itself to impliedlyconfirm that it all is a management problem, but which cannot ever be corrected evenafter the availability of the required equity and bringing in good-management. However,no reason is given for this pessimistic view. Experts, on the other hand, correctly opinethat the SOE losses are mainly a management problem and nothing else.

The Army in late 1998 for WAPDA and the KESC could not bring about the desiredresults. It cannot be held against the SOEs or their ability to deliver. Non-professionalmanagement is indeed cronyism and nothing else or at the least bad governance. So, in away, SOEs can be brought out of their present morass, first, through good governance atthe decision making government level and then through induction of professionalmanagement as a second pre-requisite. Whatever the protagonist may claim,privatization- at least in the developing or the underdeveloped states- is a big drag and adispensation nearly having no advantage for anyone but a few who normally doinordinately benefit from such scheme of things. Actually, it is a prelude to the negativeaspects of globalization and a scourge for the peoples who are as yet in the process of

attaining a semblance of modernity.

Public sector comprises of over 70 per cent of the national wealth, which surely cannot bepaid for or bought-up by the nascent private sector. In case the domestic private sectorjoins in to buyout the SOEs (inclusive of the infra-structure and the utilities), it would notbe left with anything worthwhile to invest elsewhere which all is not a praiseworthyscenario. (13)

4.4 Consumption patternsa policy issue

The outgoing government of Mr Shaukat Aziz boasted high growth rates but could befaulted on vision, which means it lacked a proper assessment of the future energy needsof the country after the State Bank unleashed consumerism on the countrys middleclasses. It caused food inflation, followed by food shortage, but more lethally itfailed to anticipate the energy needs of a population with cheaply borrowed money inhand and new Chinese split air-conditioners flooding the market. The energyrequirement, which used to increase by less than 10 percent, shot up to 20 percent lastyear! Will Pakistan catch up? Estimates are that the energy gap will be filled by 2010.


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Till then the population will suffer and continue to become more and more violent. Thatis, if the target year 2010 is realistic.

The consumption of electricity by various economic groups has assumed a patterncharacteristic of the consumer society. The domestic consumption which was only 17.7

per cent in 1978-79 has increased to 40.4% in 1996 while the share of its use in industryand agriculture has in the meantime declined from 39.7 per cent and 23.8 per cent to 28.9and 18.3 per cent respectively. This, by all standards of a developing society, is adangerous trend. It may indicate prosperity and give the impression of enhancing thequality of life, but in real terms it reflects on the un-productive use of electricity, which isa characteristic feature of a pseudo-affluent society.

The social setup of this country has unfortunately become consumer-oriented during thelast 25 years and the trend is clearly towards its becoming a consumers' market, as part ofthe New Economic Order which requires that all economies be aimed at an open marketsystem. Pakistanis have responded very positively by importing, or else smuggling

commodities, instead of manufacturing them locally. It is this consumerism which hasfilled each home in the rural and urban areas with electrical appliances.

The increase in communication facilities and the consequent increase in the mobility ofpeople have resulted in the purchase of electrical items. The purchase of such appliancesand gadgets has been promoted by the remittances from the Pakistanis working abroad.Factors such as these have raised the expectations of the people and promoted theconsumer behaviour. The beneficiaries are the industrialized countries which market theircommodities.

Consumer behaviour has given rise to evasion of taxes, adoption of short cut methods to

get electricity. Several hundred thousand units of electricity are being consumed everymonth through corrupt practices but are shown as power losses. The heavy load to meetthe domestic requirements and of illegal connections is responsible for power breakdownand load shedding. The overall inefficiency in management allows pilferage in thedistribution system, which is compensated for by the Wapda by raising the tariff.

The demand for electrical power, compounded by the illegal losses, is estimated torequire a capital cost of Rs. 700 to 1,000 billion for thermal power generation of themagnitude of 54,000 MW by the year 2018. The running cost in terms of fuel only willbe $2.5 billion i.e. 13 times higher than the present. (14)

5- Privatization of utilitiesa failure

Privatization of utilities in the developed states has also been a failure. Case studies of theUK, Australia, Argentina, Brazil and Chile confirm that privatization is always againstthe public interest and thus benefits only the investors. In the process many a governmenthas lost the goose that used to lay golden eggs. Additionally, the private sector's costcutting agendas invariably resulted in job loss- anathema in Pakistan at least. And to addup to the woes of the present governments in the above listed countries, it was seen that


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subsidies had to be doubled as the new operators refused to do anything by way of socialobligation. The quality of service too went down.

All this further substantiates the thesis that utilities are different from other ventures andthus cannot be equated with normal industry or even a service. Probably, this is the

reason why private utilities are also mostly in the red in the USA and at constant oddswith the regulators. Another important requirement is the need for a neat dovetailing ofthe national policy with running of the utilities especially for a developing country likeours. This is further magnified when centralized planning takes precedence overdecentralized activity as is the case in Pakistan. Such a type of planning- incidentally amust for building basic infra-structure blocks- requires end implementation teams thatagree to the national edicts.

In short, privatization of the utilities cannot ever be contemplated before a basicminimum developed infra-structure is already in place. At this stage the normal questionwould be as to what needs to be done and how could the SOEs- specially the utilities- be

made profitable. (15)

6- Social dimensions and impact of privatization on workforce

International Labour Organization (ILO)s five regional studies on impact of privatizationon labour emphasize upon the need to understand and address the repercussions of theongoing transformations on the workforce. The studies warn that cost-cutting that leadsto lower employment, reduced training opportunities, and poorer working conditions canbackfire. The best workers may leave and the remaining workforce, demoralized, mayreduce its work effort. Many water, gas and electricity services, particularly indeveloping countries, are experiencing serious shortages of skilled personnel.

Retrenchments, sometimes massive, pose particularly serious problems in the currenthigh-unemployment context. Their consequences may be far-reaching, going beyond theeconomic sphere and even affecting social and political stability.

Human resources should thus be core concerns in the public utilities. The five regionalstudies indicate that, by and large, they are not given adequate attention when acompany's transformation is being considered, planned or carried out. In many cases it isnot until trade unions react vigorously, out of concern about the likely employmentlosses, and the possible deterioration in conditions of work and employment and inlabour-management relations after those changes, that the labour dimensions areconsidered.

6.1 Employment

Employment losses almost always accompany adjustments in the public utilities, bothunder privatization and under restructuring schemes. Employment reductions may occurbefore privatization, as governments try to render the company more attractive topotential buyers or operators. They may occur during the privatization process, or sometime after it. In some cases they have accompanied all three stages. In many instances


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worldwide they have indeed been massive. It is not unusual to see the workforce slashedby 30 to 50 per cent. According to the studies, employment cuts were found to besomewhat more severe under certain forms of privatization, namely contracting out andtotal privatization; and when there occurred a combination of privatization andrestructuring processes. It also found instances of employment increases after

privatization, but these usually followed periods of large-scale retrenchment.

Such sharp employment cuts are particularly worrying as in most cases they have beenoccurring in times of economic recession and high unemployment. This makes it all themore difficult for retrenched workers to find alternative occupations and sources ofincome for themselves and their families, and for governments to assist them, andgenerally worsens those problems. In a sense, the substantial costs of privatization andrestructuring may be passed on ultimately to governments and society.

6.2 Industrial relations

Privatization generally affects unionization, bargaining patterns and collectiveagreements. In countries where public sector workers, or specific categories of them,have more limited union rights and in general lower labour standards than are current inprivate companies, privatization may well bring improvement. But in a good number ofcases, unionization and industrial relations come out weakened from privatization andrestructuring processes.

The national political context and habits play a key role in determining the pattern ofindustrial relations, even after privatization. The studies found that even foreigncompanies that become the owners or operators of a public utility seem to adapt theirpolicies to the context in which they function. (Pakistan is an example wherein

militarization weakened the trade unions or trade union activities were banned)

Michael Paddon in particular pushes for greater efforts to better understand the impact ofmultinationals as these are becoming major protagonists in water, gas and electricityservices, in the wake of privatization and liberalization processes. Their transnationalnature is reflected in their economic behaviour and human resource strategy, includingbargaining and labour relations.

6.3 A participatory approach--the necessary connecting thread

A major conclusion of a recent ILO Sectoral Meeting has been that " Public sector

reforms are most likely to achieve their objectives of delivering efficient, effective andhigh-quality services when planned and implemented with the full participation of publicsector workers and their unions and consumers of public services at all stages of thedecision-making process. " 5

The evidence from our studies confirms that an involvement of all stakeholders inprivatization and restructuring processes is a prerequisite for success. The activeparticipation of employee representatives and, for a number of matters, also of the users


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of those water, gas and electricity services undergoing such changes, holds the key tosolving or easing most of the challenges of those processes. Yet, ironically, our evidencealso shows that this is the issue on which achievements have so far fallen the furthestshort of potential. This is therefore where greater efforts must be concentrated. (16)

7- Privatization and democracy

According to a study conducted by David Hall and Jan Willem Goudriaan, privatizationis a highly political process in which the powers of the state, international agencies, andnational political institutions are deployed to achieve the transfer of public services to thedomain of private companies.

7.1 Pressures on Democratic Institutions

The pressures in favor of privatization which cascade down onto democratically electedbodies include systematic political bias by global institutions such as the World Bank,

central governments seeking to usurp the powers of local government, collaboration withlocal elites, the undermining of local judiciaries, and the abuse of human rights and tradeunion freedoms.

7.2 Multilateral bias

Multilateral agencies, most notably the World Bank and similar regional institutions,consistently favour privatization as a policy instrument. These institutions are in apowerful position to persuade governments and others to comply with privatizationagenda because they are the single most important source of loan finance forinfrastructure investment. The World Banks equity investment division, the InternationalFinance Corporation (IFC), acts as an equity partner to multinational ventures (it owns 5

percent of the shares in Aguas Argentinas, for example). The European Bank forReconstruction and Development (EBRD) issued its first loan of 90 million formunicipal services in Central and Eastern Europe in 1995. The money went, not to acountry, but the Lyonnaise des Eaux. A few months later, in June 1995, Thierry Baudonleft his post as deputy vice-president of the EBRD to join Lyonnaise des Eaux asmanaging director of international project finance.

7.3 Cronies and corruption

Corruption is a standard feature of privatization and contracting-out. Naturally sotheprofits to be extracted from a privatized service make it worth investing in a bribe to

increase the chance of winning a contract. Corruption in government contracting isprevalent throughout Western Europe, home to some of the key multinationals in thewater and utilities sectors, and has been spread by them elsewhere.

7.4 Perversions of justice

Local judiciaries are also undermined by multinationals and their governments when itcomes to ruling on disputes over the legitimacy of privatizations. Multinationals have


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devised various tactics for subverting or bypassing local law. Apparently, the rule oflaw is less sacrosanct when it risks finding against the companies interests, as thefollowing cases illustrate.

Early in 1997, trade unions and environmentalists in the Philippines brought suit against

the proposed water privatization. The courts had already displeased the Philippinegovernment with several rulings against its privatization policies, which prompted near-hysterical reactions from multinationals and the Western governments representing theirinterests. Loud complaints about terrorists in robes have resonated in government andbusiness circles in the past month as the courts delivered a series of blows to investorconfidence with controversial rulings against the states privatization programme.i

Formal protests by the entire community of Western governments contained the standardthreats of investor withdrawal.

In 2007, the Supreme Court of Pakistans decision regarding cancellation of PakistanSteel Mills privatization and subsequent dismissal of the Chief Justice of the Supreme

Court is the glaring example of perversion of justice.

7.5 Human rights and trade union rights

Privatisation processes have also led to infringement of democratic rights to protest,infringements of trade union rights, and denial of workers legal rights. In Lahore,Pakistan, where the government was privatizing the water authority, it was reportedthat the European company favoured to buy it, Berliner Wasserbetriebe, had"demanded a free-hand to run the WASA affairs, without any political interference,and a complete ban on worker unions". Trade union activity has been banned atPakistan's national energy authority WAPDA as a result of the privatisation processtoo.

Pakistan and the Corruption of Power

David Hall and Jan Willem Goudriaan quote the case study of Pakistan: In December 22,1998, Pakistans Prime Minister, Nawaz Sharif, suspended trade union activities inthe Water and Power Development Authority (WAPDA). The union in question isthe Pakistan WAPDA Hydro Electric Central Labour Union. The union has beensuspended by presidential decree, which abrogates the right of the union to operate,even as a bargaining agent; allows WAPDA workers to be forcibly retired withoutexplanation; hands over control of energy transmission to the army; and stipulatesthat anyone charged with stealing energy resources will be tried in the military

courts.

Meanwhile, the government has installed 35,000 junior commissioned officers and some250 officers of the Pakistan army in the eight transmission companies and onedistribution company that now constitute WAPDA. Eight brigadiers have already takencharge of energy transmission. The army will assist the power company in a variety ofcapacities, from reading meters and delivering bills to detecting cases of electricity theftand staffing public complaint centers. Over 150,000 workers are employed by WAPDA.


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According to the government, the present measures are justified by the heavy lossesexperienced by WAPDA, which it attributes to a 26 percent theft rate in electricityoutput. However, the main reason for WAPDAs losses is the cost of buying the powersupplied by private independent power plants (IPPs), which were set up with WorldBank financing under Benazir Bhuttos government. Hubco, the biggest IPP and the

largest company quoted on the Pakistan stock exchange, is controlled by National Powerof the U.K.

In Senegal, trade union leaders were imprisoned for 6 months in 1998 for campaigningagainst the privatisation of the state electricity company, SENELEC. Requests for bailwere repeatedly turned down, members of local human rights group RADDHO weredenied access to the court, and when the leaders were finally released in January 1999,police used teargas to disperse dozens of supporters.

When US multinational Enron was developing its giant power plant at Dabhol, in westernIndia, local demonstrations and opposition was met with severe repression by police and

security forces. Amnesty International later issued a report criticising the process, and afurther report from Human Rights Watch said that Enron had been complicit in "serioushuman rights abuse". In the UK, the government of Margaret Thatcher encouragedprivate contractors to take over cleaning, catering and waste management functions ofhospitals and local authorities, and allowed tens of thousands of hospital and localauthority workers to be dismissed and forced to re-apply for their old jobs on worseterms. This was in breach of European laws, and the Thatcher government was advisedthat it was in breach of European laws. In 1998 the UK government conceded that theseworkers rights had been breached, and agreed to pay millions of pounds in compensation.

7.6 Loss of control

A critical issue for developing companies is the extension of basic services to the entirepopulation. In the case of Aguas Argentinas, the concession contract required thecompany to extend water connections to shantytown dwellers regardless of their ability topay. But the company insisted that someone had to pay, or it would stop operating theservice altogether. The government tried to foist responsibility onto local councils, whichrefused, arguing they had not received the financing. The company then decided to exacta surcharge from wealthier customers in the form of a solidarity taxa rare instance ofa private company adopting a progressive taxation policy. The affected consumers,however, obtained a court ruling that the surcharge was illegal. And so a key issue ofpublic policy was reduced to a civil dispute between consumer groups and amultinational.

7.7 Secrecy

A valuable asset for commercial companies, secrecy is the enemy of publicaccountability. At the behest of multinationals, contracts under which public utilities areprivatized are frequently withheld from the public, so that it is impossible to determinewhat is actually required of a company. The consequences of such a strategy were


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demonstrated in Hungary in 1998. Budapest town council had sold 25 percent of its watercompany to a private consortium, but the new contract was declared a secret document towhich even senior council officials were barred access. In the first year, the companyinformed the council that it would have to pay a subsidy to cover an operating loss. Thevalidity of the companys claim could not be verified since the contract was legally

protected from public scrutiny.

7.8 The Democratic Backlash

Despite intense pressure by multinationals and their political allies, privatization planshave been scuttled in many locales. Trade unions have played a central role in nearly allthe campaigns to maintain public-sector provision of services. Public ServicesInternational (PSI), which monitors privatizations globally through its research unit,provides support and information to unions conducting these campaigns. Privatization isnot inevitable. It does, indeed, undermine the strength of democratic political processes,but local democratic entities are not automatically disempowered in the face of

privatization initiatives. On the contrary, events on a number of continents demonstratethat democratic politics can reverse privatization plans, or force them to take account ofthe interests of local communities and workers. (17)

8- Resistance against WAPDAs privatization

The Pakistan Wapda Hydro-Electric Central Labour Union has advised the governmentto desist from privatizing WAPDAs power distribution companies as privatization wouldresult in an increase in electricity rates and winding up of the rural electrificationprogrammes. Union secretary general Khurshid Ahmad and other leaders say thegovernment should protect the interests of the consumers.

They say the Benazir governments decision to purchase power from the privatecompanies and privatization of power houses like the Guddu had resulted in a sharpincrease in electricity rates on one hand and economic destabilization of the WAPDA onthe other.

They argue California in United States and New Zealand are the only countries so farwhere power distribution had been privatized. In New Zealand, electricity rates aredoubled and in California quadrupled after the privatization. Results will not be differentin Pakistan no matter what the World Bank pundits claim. (18)

8.1 WAPDA workers protest campaigns

Pakistan Wapda Hydro Electric Central Labour Union has launched protest campaignsagainst privatization of WAPDA. Union members have taken out processions and heldrallies in different cities of the country from time to time to urge the government to desistfrom privatizing the organization. The slogan-chanting workers have urged the federalgovernment not to privatize profit-earning organizations like Wapda at the behest of theWorld Bank and IMF.


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improvement in 44 per cent privatized units and performance of 26 per cent deteriorated.The rulers also claimed that the proceeds of privatization would be used for retiring

foreign loans and poverty alleviation. Foreign loans had, however, increased from $23billion in 1991 to $42 billion till date and Rs. 395 billion raised as a result of privatizationof 160 units were unaccounted for. Poverty and unemployment had also increased.

PTCL Workers Action Committee leaders Malik Maqbool Hussain and Sabir Butt saidthe workers had suffered the most due to the companys privatisation. As many as 30,000employees had been forced to leave their jobs and the remaining were being paid thesalaries of 2001 despite the fact that the government had revised the pay scales of theemployees twice. He regretted that other trade unions had not stood by the PTCLemployees in their struggle against privatisation. (20)

9- Power Sector and Consumer Concerns

Power sector has undergone major developments in recent years, including partial

privatization, but despite that electricity services in the country remain substandard andunsatisfactory. The benefits of privatization have not been passed on to the consumers,who remain confronted with a host of problems ranging from arbitrary price increases topower fluctuations and very poor quality of services.

As far as the rationale for the privatization of the power sector is concerned, it isimportant to note that the main justification given for its privatization was to attract theforeign investors. The efficiency gains did not constitute any significant or primaryrationale for privatization.

The privatization of the power sector has been opposed on various counts. It has been

argued that the maintenance and security of the assets like bulbs, electricity lines, poles,etc. scattered all over the country is difficult, and their replacement or repair is expensiveand costly. There is a huge risk involved in their maintenance and security, and theirhanding over to the private sector is likely to increase that risk. Though the governmenthad decided to privatize the sector in early 1990s, it took years to actually startprivatizing the sector. The efforts for privatization could only materialize in 1996, whenthe government decided to privatize Kot Addu and Jamshoro thermal power plants andthe Faisalabad Area Electricity Board. In addition, the government decided to privatizeKESC as well.

Initially, only 26 per cent of the shares in the electricity generating plant at Kot Adduwere offered for sale, which was followed by the sale of another 10 per cent stakes. Itresulted in the creation of the Kot Addu Power Company (KAPCO). KAPCO had verylittle government interference, and its efficiency increased after privatization. However,due to a number of reasons, including labour unrest, the Wapda took back the shares ofKot Addu power station, which had been sold in 1996 to the National Power of theUnited Kingdom.


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Critics of the privatization of the power sector in the country argue that in the beginningonly one distribution company should have been privatized so that its performance couldbe monitored after privatization. After learning lessons from this experience, theprivatization model should have been modified and then replicated to avoid problemsarising out of the first instance. Moreover, instead of privatizing the assets of the

distribution companies, their management and operation could be leased out on contractbasis for a specific period of time. Whereas the state should have retained the ownershipof the companies, and thus be responsible for security. The contract could be extended onexpiry, but subject to good performance by the private companies. (21)According to the Consumer Rights Commission of Pakistan, the power sector in Pakistanhas only partially been privatized, and thus, the proclaimed benefits of privatization likeimproved quality of services and increased efficiency have not been yet passed on to theconsumers. As a result, the problems of the consumers remain the same. Their concernsrange from poor quality service and lack of universal service provision to the issuesrelated to accountability, transparency of privatization process, regulation and publicparticipation.

9.1 Pricing & Tariff Concerns

One of the most crucial consumer concerns is related to the pricing of electricity services.It was claimed that as a result of privatization and the consequent competition in thesector, the electricity bills would be reduced. However, on analyzing the power sectorprivatization, one can easily conclude that this has not in fact taken place. It is generallyargued that privatization in its true essence should have not only resulted in improvedquality of services but also in reduction of prices. On the contrary, the fact is thatconsumers of the power services are complaining of excessive billing. The prices ofelectricity have gone much higher, and are likely to go up further. It has been assertedthat expecting the electricity prices to fall after privatization seems to be unrealistic.WAPDA and KESC continuously kept demanding upward tariff revision from theNEPRA from time to time.

9.2 Universal Access to Basic Services

The state is responsible for providing the basic and essential utilities to all the citizens ofthe state irrespective of their locality, economic status, ethnic identity, etc. The supply ofelectricity must be viewed as a state responsibility, rather than from a purely commercialviewpoint. Moreover, the electricity must remain affordable for a common man evenafter privatization. Getting un-interrupted supply of electricity constitutes a basic right forevery citizen. Given the fact that in Pakistan, the number of power consumers is far lessthan developed countries, there is a need of rapid electrification of the remote and ruralareas. It is also argued that in case of electricity services, the state is also responsible forthe security and maintenance of the distribution systems.

9.3 Regulation


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It is asserted that the deregulation and privatization process should not be made hostageto short-term economic considerations, rather it should take into account the questions ofuniversal access to basic services, equity, free competition, regulation to forestall anydevelopment towards creation of monopolies and cartels and vulnerability ofmarginalized consumers. Experience of deregulation and privatization until now shows

that at least in some situations it has resulted in the emergence of cartels. Furthermore, asa result of corporatization of some public utilities, investment in terms of expandingfacilities in the rural areas has decreased, while the emphasis has shifted towardsproviding value-added services in the urban areas.

The situation becomes further complex in the case of public services which areconsidered natural monopolies. The importance of autonomous regulatory frameworks inthe post privatization phase is recognized world over. In this context, Pakistan too has setup regulatory bodies for electric power and telecommunications. These authorities aresupposed to work independently with the aim of mediating among the various stake-holders such as business, government and consumers.

Regulatory bodies, however, suffer from several problems which include:1. Unnecessary governmental interventions, often motivated by short-termconsiderations, with significant implications for the credibility of the regulators;2. Regulators in some situations lack capacity to independently evaluate the performanceof utilities, especially in the process of determining tariff.3. Until now, it is very common in Pakistan to post people from the public sector utilitiesin the regulatory bodies. Often, they are posted on deputation and thus have an interest togo back to their parent department. This practice undermines their capacity to play animpartial role vis--vis the public sector monopolies.4. Regulatory frameworks do not make it mandatory for the regulators to hold publichearings and ensure consumer participation. As a result, at times, the regulators underinfluence from government or affluent service providers, decide not to hold publichearings.5. Even when public hearings are organized, little emphasis is given to ensure quality ofparticipation by ensuring timely access to necessary documents, reports and data. Attimes, such information was totally denied. (22)

10- Privatization and national concerns

Privatization processes invariably involve restructuring economies in terms of ownership,management as well as changes in the nature and direction of decisions about

investments, service delivery and market strategies etc. Centre for Peace andDevelopment Initiatives-Pakistan (CPDI-Pak) points out that this restructuring hurtscertain interests and benefits others and, therefore, it is bound to have implications interms of either creating new conflicts or impacting, positively or negatively, existingconflicts.

10.1 Control on national economy


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Privatization process is opposed in certain situations on the grounds that it opens up thedoor for the foreign companies to buy national assets and gradually establish control onthe national economy. It is for this reason that, in many developing countries,privatization is referred to as denationalization, which is understood as a transfer ofcontrol of national assets to foreign investors or managers. Opposition to privatization

comes from a range of actors including national enterprises, who are often competitors offoreign companies, as well as by political groups and labour unions. Ownership ofnational assets by foreign companies is seen as a threat to national independence andsovereignty. Many blame the giant corporations which are understood as staging anew-style global coup d'tat and against whose power, the state is losing more andmore of its prerogatives.

10.2 Regional inequalities

Privatization processes may benefit certain regions more than others, and hence may leadto intensification of inequalities across regions. This happens especially when

government fails to appropriately design the privatization model and, at the same time, isnot willing or able to intervene by making public sector investments, directly or inpartnership with the private sector, to ensure uninterrupted supply of basic services or toaddress problems of increasing inequalities across regions or classes. Such inequalitiesacross regions can potentially be very damaging for the political integrity of a diversecountry. Existing evidence suggests that issues around access and equity can potentiallycause socio-political conflicts at various levels. Such conflicts may have significantlinkages with class, ethnic or religious identities of the people.

In some situations, privatization is also seen as involving risks for national security orlaw and order maintenance. It is particularly relevant to situations where there alreadyexist serious conflicts and security agencies or political actors do not trust the transfer ofindustries to the private actors. Other political groups or state agencies, however, maysupport privatization for reasons related to politics, economic efficiency or mobilizationof investments and resources. For instance, in 1994, the Government of Pakistan stoppedmobile telephone operations in Karachi for a couple of years on the grounds that criminaland terrorist elements were using it for unlawful activities.

Similarly, electrification of rural areas and the vast un-electrified tracts of Balochistan isanother issue that requires and forces retention of an integrated WAPDA.

WAPDA union leaders also apprehend that privatization of distribution companies wouldresult in further escalation of electricity rates and scrapping of the rural electrificationprogrammes as the private power distributors would be unwilling to serve new consumersin remote villages. Before the WAPDA took over, they said, the Rawalpindi ElectricPower Supply Company and the Multan Electric Power Supply Company, used to refuserequests for connections in rural areas because they did not expect a large electricityconsumption by villagers.


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The Wapda had kept down the increase in power rates despite purchasing power from theprivate companies by generating its own thermal and hydel power at lower rates. It issupplying power to 10,366,000 domestic and 182,000 agricultural consumers at rateswhich were lower than its own costs.

Privatization of distribution companies like the Faisalabad Electricity Supply Companywill affect the Wapdas capacity to subsidize electricity rates for domestic andagricultural consumers. They say the consumers cand not afford a further escalation inrates resulting from privatization of distribution companies.

Another important point against privatization is the lack of public consensus on the issue.As outright sale of national assets is an issue directly relating to the real owners viz. thepeople, the government before taking up any such activity or making laws orpromulgating ordinances, should seek public opinion. Without the same it could not beconsidered to be in public interest and welfare. The issue should be discussed in theassemblies through public representatives as required under Article 18 of the

Constitution.

10.3Division of royalties among federating units

In addition to the conflicts identified earlier, which are the most common ones, there alsooccur a range of other conflicts on issues such as division of royalties among federatingunits, nature and scope of regulation, and the role of state in the context of distorted orfailing markets.

The existing literature on privatization, as summed up above, clearly misses out thedistribution impacts of privatization or deregulation across regional and ethnic groups.

Whatever discussion about distribution aspects exists is about various economiccategories of consumers defined on the basis of their income levels. This is a crucialshortcoming from the perspective of many developing countries where markets areunder-developed and where diverse ethnic and regional groups have traditionally been atloggerheads for control of resources and power. In many such contexts, the ethnic andregional groups are already politicized and have claims that states have to keep in view,while formulating and implementing public policies. The example is the conflict inBalochistan over the natural resources. It is considered important for nation building,promoting national solidarity and addressing the concerns related to discrimination andexclusion, which could easily mobilize people around ethnic and regional conflicts.

The point remains that the predominant role that the public sector in many of developingcountries had assumed was not just for consumer protection but also for nation-building.This is a significant point of departure from many of the developed nations, where thepublic sector grew largely for consumer protection and, arguably, in response to thechallenge of leftist movements---resulting in the emergence of the welfare state. The realchallenge for many developing countries was to secure their territorial integrity byreducing the possibilities of secessionist ethnic or regional movements through nation-building initiatives.


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With privatization and the restructuring of economy, the entire political system needs tore-adjust. The challenge is if the privatization of public sector entities results inweakening of elite alliances and triggers a process of resentment in various regions andethnic groups. It may be expected to happen especially if all regional and ethnic groups

do not benefit from it. Increased conflict will only be avoided if privatization initiativesare so successful that a substantial support-base of beneficiaries is established andthereby the opposition of vested interests is overcome who support status quo. (23)

11- Recommendations

WAPDA can be brought out of its present morass, first, through good governance at thedecision making government level and then through induction of professionalmanagement as a second pre-requisite. There are several key elements involved inpursuing democratic alternatives:

Democratic support

1- Workers union can muster powerful economic, strategic, and political arguments infavor of public provision. For instance, despite claims by privateers that they can deliverservices more cheaply, thereby saving taxpayer money, in fact public-sector provision isalways less expensive in the long run. Making this argument requires looking beyondimmediate savings to the broader socio-economic dislocations caused by the inevitablejob losses that accompany privatization and price hikes that invariably affect low-incomepopulations.

2- Privatizations often seem attractive to public officials because of a perceived lack of

investment capital. However, there are sources of investment finance available to public-sector entities - from banks and investment bodies like pension funds, which are asprepared to lend to the public sector as the private sector in principle.

3- A frequent strategy of privatizers is to criticize public-sector operations as inherentlycorrupt and inefficient. One need only review the record of privatizations, includingmany mentioned above, to discredit this claim. Anti-privatization campaigns should bearmed with information on companies corrupt practices as well as their actual rather thanpurported record of service delivery in different locales.

4- a crucial difference between private and public projects is the level of accountability.Pointing up this difference, and the implications for open debate on questions of socialpolicy as well as avenues of public redress, is an essential component of an anti-privatization campaign.

5- Unions have also taken the lead in developing public-sector options which satisfy theneed to reorganize public services to meet new financial and social demands. In water,these include plans developed with trade unions in Cape Town, South Africa, Debrecen,Hungary, and Tegucigalpa, Honduras. The public sector is not a poor option. Activists


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can and should insist that private proposals be evaluated against public-sector optionssuch as these.

6- In the event that a privatization does occur, workers and their supporters can maximizedemocratic accountability through framework agreements which lay down procedures

that have to be followed before privatizations can take place; and through a strong, publicregulatory system.

7- The ILO five studies point to a number of measures that can be taken to alleviate theproblem. By moderating the pace of change, at least part of the desired reductions can beachieved through natural attrition and voluntary separations. This gives time to considerand select less traumatic, more positive options.

8- At all stages, decision makers need to keep their minds open to alternatives, such asorganizing redeployments and retraining schemes for workers to adapt to the differentnew jobs and tasks that may be needed in the new set-up. In a number of cases, job

flexibility could advantageously substitute employment flexibility. A prerequisite to it,though, is social partnership and dialogue.

9- Although separations may be necessary, because of overstaffing in the past or the factthat the new work organization requires fewer workers, they should be limited.Maintaining a workforce intact engenders trust, and with it cooperation and loyalty. Bothare important at any time in an enterprise, but become essential to introduce changesuccessfully and boost performance.

10- Gradual reductions help attenuate the traumatic effect on the enterprise, and alsoafford more time to governments and to society to adapt and lend support to the affected

workers and their families.

11- Voluntary separations can be encouraged, for instance through financial and othercompensations. Generous compensations render the process less traumatic for thoseleaving the company and for their families, and at the same time smooth the process oftransformation.

Remunerations and other working conditions

12- It seems that, as in the case of employment, pay levels should be discussed before thelaunching of the process, and the outcome of those discussions included in some formal

agreement.

13- Higher wages could indeed be logical and even necessary after privatization andrestructuring. They may help compensate the employees retained for the loss of aprotected status, facilitate achievement of greater productivity, which may entail morestrenuous working conditions such as the longer working hours and pave the way to amore flexible, multifunctional workforce.


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14- In remuneration matters too, transparency is an essential element of success. Anychange of levels, scales and components of pay needs to be discussed betweenmanagement and labour, and should be understood by all.

Training

15- Training is the third most important concern of employees, after employment andincome security. It is actually closely linked to them. In the context of a company'srestructuring, changing work organization, workforce reduction, and its quest forflexibility and higher standards of performance, retraining is the key to employmentsecurity, or at least labour market security (that is, the capacity to find employment fairlyrapidly elsewhere).

16- To ensure employability, and thus be credible, training must be appropriate. It shouldprovide skills in high demand, and thus genuine potential for redeployment (within thesame organization or in the wider labour market), and career opportunities too.

Codes and Agreements

17- International codes and written agreements have proved to be very importantinstruments to mitigate the effects of the changes caused by a company's privatizationand restructuring on its employees. They typically contain provisions for handlingemployment reductions and on the employment and working conditions of employeeswho will transfer to the new company.

18- International rules may be effective in limiting employment cuts resulting fromprivatization. The Acquired Rights Directive of the European Union, for instance,

requires that workers whose company is undergoing capital privatization or is beingcontracted out, be automatically transferred to the new structure. Similar protections inthat text span working conditions and industrial relation rights.

19- Agreements and formal undertakings by governments also help considerably insmoothening the process. In the absence of clear agreements, workers often strive to staywith the old company, for lack of guarantees about employment and working conditionsin the new company. And trade unions, reflecting those apprehensions, typically opposethe process, through strikes, public campaigns, etc.

20- The credibility of agreements rests heavily on their having been reached at the early

stages of privatization and restructuring processes, as opposed to having been rapidlysketched as last-minute, remedial action.

21- Their credibility also requires the active involvement of trade unions in theirpreparation, rather than being the fruit of unilateral decisions of governments or the newemploying company.


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22- Their reliability is strengthened if they are the result of peaceful negotiations ratherthan open confrontation.

23- Agreements' effectiveness hinges on their long-term sustainability. So far, measuresstipulated in agreements have, by and large, been time-bound, which causes apprehension

about the long run. The sustainability of agreements is enhanced if tensions between therequirements they set and the needs of the new structure, contractor or owner are kept toa minimum.

24- When a private owner is involved, negotiations to reach the agreement should havethe state as intermediary, and guarantor. Labour market deregulation that runs in parallelto the setting up and implementation of agreements clearly reduces their impact onemployment, working conditions and industrial relations.

25- Special consideration should be given in agreements to women employees and morevulnerable social and ethnic groups. In times of adjustment, they are typically the first to

be hurt by drastic employment reductions and deterioration in working conditions.

Participation

26- The full involvement of employee representatives in the design, planning,implementation and monitoring is desirable not just on ethical grounds, but also becauseit produces useful, tangible results for labour, society, and enterprises themselves.

27- In the absence of negotiation, and even mere consultation, transformations have metstrong opposition. The process needs to be discussed within the enterprise, to explain thesituation, identify solutions, avoid misunderstandings and dispel fears. This opens up the

possibility of transforming the enterprise into an effective, long-term coalition.

28- Trade unions should be a source of knowledge and ideas, both at the company and atmore macro-economic levels, to minimize employment and social costs, improve thequality of services, and increase companys competitiveness.

29- Fundamental to unblocking tense situations between public utility employeesoperating in companies undergoing privatization and restructuring and the other partiesinvolved in those processes is recognizing and addressing some basic employment andincome concerns.

30- Agreements and formal undertakings (covering employment, income, etc.) that arethe outcome of a dialogue among all stakeholders are more credible than those devisedunilaterally, by the new owners or governments.

31- The dialogue with trade unions and other stakeholders should start at the very firststages of privatization and restructuring processes. Their input should be sought toanalyze the situation, identify the problems, and explore the costs and benefits of thevarious options available. The earlier stakeholders come into the picture, the wider the


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array of possibilities concerning options and paths to implement them, the smoother theprocess, and the stronger the solutions. Early-stage dialogue is severely lackingnowadays.

32- There is a considerable need to construct paths for social dialogue, both at the

company and at more macro-levels, so that stakeholders can debate and negotiate thedevelopment, enactment and monitoring of the schemes.

33- Developing social dialogue mechanisms in multinationals deserves special attention.These are becoming prominent actors and their functioning, in many ways different fromthat of national enterprises, is still ill-known, difficult to follow and to control.

34- An amenable political and industrial relations climate facilitates and even stimulates aparticipatory approach.


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References

1- The News, Karachi, March 07, 20082- DAWN, Islamabad, May 09, 20083- A. Salman Humayun and Tanvir Anjum, PRIVATISATION OF PUBLIC

UTILITIES: A CONSUMER PERSPECTIVE, Published by Consumer RightsCommission of Pakistan, P.O. Box 1379, Islamabad, Pakistan, E-mail:[email protected], Web Site: http://crcp.sdnpk.org

4- Ibid5- Briefing Paper prepared by Violeta P. Corral, Public Services International

Research Unit (PSIRU-Asia), June 2005

6- Ibid7- Transformation of Public Sector Entities, Speech delivered by Mr. M. Ali Shah,

Country Director, ADB, Pakistan Resident Mission, 19 June 2003, Karachi,Pakistan at a seminar organized by Sidat Hyder Morshud Associates PrivateLimited. http://www.adb.org/Documents/Speeches/2003/ms2003054.asp

8- Editorial, DAWN, Karachi, April 7, 20089- Editorial, DAWN, Karachi, March 24, 200810- DAWN, Karachi, May 29, 200611- DAWN, Lahore, April 7, 200812- Dawn, Karachi, March 17, 200313- Engr. S.Tanzeem Hussain Naqvi,Haste in privatization of public utilities,

DAWN, Karachi, December 25, 200414-.Dr. Mirza Arshad Ali Beg, former director general (P&D), DAWN,Jul 06 - 12,

1997.15- Engr. S.Tanzeem Hussain Naqvi,Haste in privatization of public utilities,

DAWN, Karachi, December 25, 2004.16-Labour and social dimensions of privatization and restructuring - Public utilities:

Water, gas, electricit,. Part I: Africa/Asia-Pacific Region, ILO,edited by L. deLuca

17- David Hall and Jan Willem Goudriaan,Privatization and Democracy, PSIRU,June, 1999, Published as: Privatization and Democracy by David Hall and Jan-Willem Goudriaan, in Working Papers in Local Governance and Democracy

1999/118- Press conference addressed by WAPDA union leaders, DAWN, May 8, 200219- Interviews with president and secretary general of WAPDA union conducted by

Mazhar Arif20- Khurshid Ahmad address at a seminar on Privatization and Role of Trade Union

Movement organized by Labour Education Foundation at the Press Club Lahoreon April 30, 2008, Dawn Report May 1, 2008
mailto:[email protected]://crcp.sdnpk.org/http://www.adb.org/Documents/Speeches/2003/ms2003054.aspmailto:[email protected]://crcp.sdnpk.org/http://www.adb.org/Documents/Speeches/2003/ms2003054.asp


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21- A. Salman Humayun and Tanvir Anjum,PRIVATISATION OF PUBLICUTILITIES: A CONSUMER PERSPECTIVE, Published by Consumer RightsCommission of Pakistan, P.O. Box 1379, Islamabad, Pakistan, E-mail:[email protected], Web Site: http://crcp.sdnpk.org

22- Ibid

23- Mukhtar Ahmad Ali,Privatisation of Public Utilities: How is it Generating andImpacting Conflicts in Pakistan?Centre for Peace and DevelopmentInitiatives, Pakistan (CPDI-Pakistan),December 2008
mailto:[email protected]://crcp.sdnpk.org/mailto:[email protected]://crcp.sdnpk.org/


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