The politics of privatization
By Ali Hayat
THE conflict between the administration of the Karachi Electric Supply Company and its labour union came to an end on July 26, 2011 (though there are signs it might erupt again).
In a country where politicians and political parties alike are accused of being indifferent to the plight of the masses, it was curious to see a broad national coalition of political support for the protesting KESC workers.
However, economic experts have accused the government and political parties of mishandling the labour row at KESC and in effect damaging the country’s privatisation programme. The political support is blamed for dragging the KESC-labour dispute.
According to former finance minister Salman Shah, KESC’s “privatisation has been mishandled, which creates a poor image of
the country’s investment environment and privatisation policies”.
In theory, privatisation of a public utility should bring in greater efficiency, reduce costs, attract foreign investors and make service delivery more effective and competitive. However, the KESC privatisation is not a theoretical construct. What critics fail to see is the political nature of how this process of privatisation has been implemented.
At the time of its privatisation the government assumed all of KESC’s outstanding debt, approximately Rs5bn. Since 2005, KESC has assumed debt in excess of Rs200bn. The utility owes money to Pakistan State Oil, Sui Southern Gas Company and Wapda. In addition, KESC has received a total of Rs105bn in government subsidies since 2008.
KESC has been applying a fuel adjustment surcharge to its customers, when in fact it has relied on natural gas rather than oil to generate power. KESC has also been collecting television licence fee, a fixed sum of Rs35 per residential consumer, and a 15 per cent general sales tax from every consumer since October 2008. But it has not deposited any of the approximately Rs32bn raised in the national exchequer.
The workers interviewed for this article also mentioned that over the last few years, the KESC management has been replacing the copper in its installations with aluminium. In some cases even the high tension lanes have been converted to aluminium.
In general copper fuses are better than aluminium and can take greater electricity load without burning out and are less prone to causing cable faults. In terms of price, copper usually sells for Rs800 per kilogramme as opposed to aluminium, which sells for around Rs150 per kilogramme.
The way in which KESC went about sacking close to 4,000 of its employees is highly problematic as well. In 2009, the KESC management approached the National Electric Power Regulatory Authority and suggested that close to 7,000 or so KESC employees were surplus and that it wanted to pay them off and get rid of them. Nepra did not approve of this and allowed KESC to increase the price of electricity by 15 paisa per unit so that it could retain the workers.
As per general estimates, since Nov 2009 to now, KESC has collected close to Rs2bn from customers for the salaries of the so-called surplus employees, even though the combined salaries of these employees did not amount to this total.
On Dec 31, 2010 KESC’s private management announced a voluntary separation scheme (VSS) for non-management and non-technical staff. As per the terms of this scheme the workers had until Jan 15, 2011 to opt for it and during this time, only 250-300 KESC employees opted for the VSS. On Jan 19, KESC sacked more than 4,000 of those who had been offered the VSS and had refused to opt for it. As per a KESC press release the sacking constituted “elimination of a number of its [KESC’s]
non-core and redundant functions”.
What was ostensibly a voluntary scheme was actually forced upon the workers who decided not to accept it. Moreover, if the functions and duties these workers performed were actually redundant, KESC would not have replaced these positions with services from private contractors. After having sacked the 4,000-plus workers KESC went on to hire the services of a larger number of private contractors.
As per the estimate provided by the previously sacked KESC workers, in terms of security personnel KESC sacked about 700 security personnel and replaced them with 1,800 contractors. Similarly, it sacked close to 400 drivers and replaced them
with 900 private contractors.
Outsourcing of what were apparently “redundant” functions has also come at a very dear cost. In its bid to hire private contractors KESC has compromised the safety of its workforce. Over the last few months, a number of KESC’s hired workers have reportedly died on the job. According to the workers interviewed, this has happened because KESC often hires non-technical workers to perform potentially dangerous tasks.
Since its privatisation, KESC has moved from being an entity with zero debt at the time of privatisation to one with over Rs200bn in debt. The KESC management and economic experts who have been critical of the Pakistan government have been quite selective. In particular, they only criticise government interventions when it comes to enforcement of labour laws while not acknowledging that the government has also been actively intervening in the form of providing exorbitant subsidies to KESC despite its continued failures.
Salman Shah is correct in pointing out that the privatisation of KESC has been mishandled. However, the way in which it has been mishandled varies significantly from the reasons provided by Mr Shah. Only an independent inquiry into the way in which KESC was privatised, as well as how it has operated ever since, can lay out the nature and magnitude of this mishandled enterprise.
The writer is based in the US and affiliated with a Pakistan-based private research firm.