ISRA UNIVERISTY, HYDERABAD

PRIVITIZATION OF POWER
SECTOR IN PAKISTAN:
REASONS AND EFFECTS
WAPDA K ELECTRIC

ASAD ALI BACHANI

SAADULLAH SOLANGI
ABRAR DAWACH
ALI SUFIYAN
SUPERVISED BY : MAM NAJMA SOOMRO

ABSTRACT
Private sector has contributed an important role in developing the economy and
facilitating the people of any nation. This paper investigates the factors constraining the
privatization of power sector in Pakistan. Main purpose of this research is to identify
these issues. The research is being conducted on the methodology histogram
comparison through public survey, interviews and some secondary data. We can
conclude that the factors like overstaffing, mismanagement, corruption; theft, budget
deficit etc are putting bad impact on customer satisfaction, economic growth, legal rent
rates, and entrepreneurship of Power sector in Pakistan.
KEYWORDS
Private sector, Causal relationship, Overstaffing, Mismanagement, Budget deficit,
economic growth.

INTRODUCTION
Power sector is one the most important sector for any nation. Power sector is the sector
through which other sectors of the nation can bring their performance and help in
developing the economy. Power sector also helps in generating the economy for the
nation. Like in Pakistan power sector has the job to generate, transmit and distribute the
electricity all around Pakistan. In Pakistan power sector generates electricity through
different sources. These different sources include Hydro, Solar, Wind and Thermal (Oil,
Coal and Gas). In Pakistan two public sector utilities generate electricity. WAPDA and
KESC. WAPDA supply electricity to whole nation except Karachi in which KESC supply
the electricity.
WAPDA is one of the biggest and most important sectors of Pakistan. WAPDA was
found on 12 February 1958. WAPDA is divided into two wings
1) Water wing
2) Power wing
Water wing takes care of all the water authority of Pakistan and Power wing have the
authority to generate electricity and distribute it all around Pakistan.
WAPDA power wing generate electricity through different sources.
1)
2)
3)
4)

Hydro
Thermal (Oil, Coal and Gas)
Solar
Wind

Most of the electricity is generated through hydro source by WAPDA.

Privatization is one of the aspects which help the nation in increasing the efficiency and
economy of it.
Now from understanding the benefits of the privatization and the status of the WAPDA
sector, government has planned to privatize the Power Sector of Pakistan. Government
has planned but the workers of WAPDA protested against the privatization of WAPDA in
the fear of losing their jobs and benefits.
The Question raise again that should WAPDA be privatize in order to benefit its nation
or should listen to the quarrels of the workers in favoring them to continue the illegal
activities?

REASONS FOR PRIVATIZATION OF WAPDA:

Although many ongoing projects of privatization are going on in WAPDA but much has
to be done, Pakistan announced a policy shift in the late 1900s in the government of
PMLN but wasnt implemented properly due to various political reasons. KESC on the
other hand has been privatized but still hasnt proved to be a success story because of
many government interactions. This is because KESC is responsible for generating
power which is mostly thermal power but the transmission of power in Karachi still lies
under the supervision of government. Privatization of the process of transmission can
be proved to a better solution to take out the nation from energy crisis but wont prove to
be a miraculous advantage of the country. (Weiss, 1999)
WAPDA along with its other functions should be privatized because the policies that
they have implemented are mostly short term and have shown a huge failure in the long
term. These policies have resulted in low profitability and higher system losses. Another
critical aspect of this is that the pricing plans that have been implemented are not up to
the mark. Proper pricing strategies must be employed to recover the system from the
failure and this could only be implemented by giving the core responsibility solely to
private hands. (Rehman, 2012)
Another important reason to be considered is that there are many technical problems
that cause for system losses which include depreciated technical assets which dont
perform effectively because of poor maintenance. Overstaffing in WAPDA is another
crucial aspect. According to reports there are many employees whose existence doesnt
matter which only waste government resources. Theft on the other hand has been
greatly increased in the recent years which waste the valuable resources of government
(Weiss, 1999)
WAPDA as a government organization has certain obligations. As WAPDA supply
electricity to many other government departments, huge amount of debts in form of
arrears has not been collected for many years. As a government organization it has
created many problems for collection of this debt. Privatization would be easy to recover
these debts. (Rehman, 2012).

LITERATURE REVIEW
Umaid A Shaikh and Sadaf Shaikh ( 2013), studied effects of privatization on
economy and its adverse effects on economy, followed by their objective which was the
effects of Privatization on GDP rate , debt , growth rate , inflation , unemployment,
import and export issues , CPI , external debt. On the basis of review of literature they
concluded that privatization brings positive and major feedback in the system of the
country from every aspects macro and micro morally.
From World bank policy and research working paper, we may quote the example
of Latin American countries, Luis Andres and Vivien foster and Jose Luis (2006),
studied the impacts of Latin American countries which proposes the impact of power
distribution after getting privatized and its effects on the economy of the country which
concluded it as the economic indicator of the economy in the Latin American countries
with 116 distribution companies. And in most of the countries it has shown a productive
result.
As our analysis is based on Pakistan, we may quote the example of research
done by Fahd Ali and Fatima Baig (2007). They researched history of Private Power
sector in Pakistan on which their objective was to present the controversies and issues
that surrounded the policies made in 1994. After statistical analysis they concluded that
the way forward lies in strengthening electricity regulation in the country, empowering
civil society, and restructuring WAPDA, but not necessarily privatizing it in the process.
Abdul Ghaffor and John Weiss, (1999) Studied Privatization of energy sector in
Pakistan: Some important issues, their objective was to determine causes of
Inefficiencies and the Impacts of Privatization on the public as well as the economy of
the country, which concluded that Properly reconstructing the mechanism might
improve the hitches faced by Energy.

PRIVATIZATION OF POWER SECTOR SINCE LAST THREE DECADES:

WAPDA is a government organization which is in the phase shift of being privatized.
Since 1980 Pakistan government announced to transform many public sector
departments to be privatized but due to several reasons most of them could not be
shifted as private entities. Privatization literally means that the transformation of a public
sector organization to an independent privately owned sector. In the case of Pakistan,
privatization was a better solution because the government owned enterprise was not
working efficiently and transforming into a privatized firm would prove to be a much
effective than ever, on the other hand the state owned enterprise was under much
pressure for the maintenance of the technical assets because shortage of government
resources and interferences of political environment.
Since last three decades two of the major department of WAPDA KESC (Karachi
electric power company) has been privatized that is responsible for generation
electricity for the geographical location of Karachi. Now commonly known as K Electric
was privatized in November 2005 which now employs more than eleven thousand
people and covers a vast area of 6500 km for the purpose of residential commercial and
industrial areas. By 2012 K Electric now generates a total power of 2052 megawatts
after successful construction of its latest bin Qasim power plant 2 which generate an
additional of 560 megawatts. K Electric which is responsible for the production of its
own power has also many contracts with different IPPs that generate power for K
Electric. These are the following power stations that generate power for K Electric.
1.
2.
3.
4.
5.
6.

Bin Qasim Power Station 1 (Capacity: 1260 MW)

Bin Qasim Power Station 2 (Capacity: 560 MW)
Korangi Thermal Power Station (Capacity: 125 MW)
Korangi Combined Cycle Power Plant (Capacity: 220 MW)
SITE Gas Turbine Power Station (Capacity: 88 MW)
Korangi Gas Turbine Power Station (Capacity: 88 MW)

KAPCO (Kot Addu power company) was established in 1996 was built by the water and
power development authority of Pakistan and is responsible for generation of electricity
for the area of muzafargarh Punjab. KAPCO which is one of the largest power
generation companies in Pakistan was privatized in April 2005 and was listed in all the
stock exchange of Pakistan. KAPCO is one of the largest Pakistan IPO and produces
more than 1600 megawatts of electricity which has given a name plate of largest
capacity producing IPP in the country. (Umaid A Shaikh , Sadaf Ehsaan, Sep. - Oct.
2013)

EFFECTS OF PRIVATIZATION ON PUBLIC

Government of Pakistan has completed 167 dealings of the dispose- off of SOEs worth
Rs. 467.421 Billions. As far as study on year wise changes which shows on account the
variables chosen in our study are concerned, the results show unforeseen changes
on the economic growth patterns in FY93, FY94, FY95, FY96 and FY02-03. Economic
growth is found growing at an unsteady patterns and it is concluded that privatization
resulted to be as least effective for an economic growth. For instance, privatization is
scandalized on the panel of researchers in realizing its positive effects on the economic
growth. From past researches too, it is felt that privatization does not have effective role
in economies of Less Developed Countries. (Khawaja Asif Mehmood and Muhammad
Zahir Faridi, 2013)
As per Christiansen (1989), the reason of the sole denationalization is attained when
the proprietorship of the state owned organizations assets is moved to the independent
proprietor. In that scenario the management is also loosened from the government to
the independent sources. (Goher Fatima, Wali ur Rehman, Jan , 2012)
a) Increase in cost.
Generate Revenue:
Public sector enterprises are hallowed with the facility of subsidies provided by
the government, hence a burden on the public exchequer. When they are
privatized and thus subsidies are removed by the government, then they are
required to generate their own incomes either in the form of debt or in the form of
capital investment in order to remain competitive in the market. (Goher Fatima,
Wali ur Rehman, Jan , 2012)
Develop Capital Markets:
Private organizations engage their resources and also invite the external
financiers to capitalize in their venture by offering optimum rate of profit.
Therefore, denationalization helps these Originalities in developing worthy
principal marketplace all over the country and foreign. (Goher Fatima, Wali ur
Rehman, Jan , 2012)
b) Lack of accessibility.
Improve Efficiency:
When certain businesses and enterprises are not buoyed by the government owned
resources (which they take as for granted), then they are considered to operating in a
competitive atmosphere, where they have to counterattack for the resources with their
competitors. (Goher Fatima, Wali ur Rehman, Jan , 2012)

Broad Base Ownership:

Once the enterprises get privatized and the private management enjoys full autonomy,
then for the sake of capital gain, they offer their shares for common public to obtain in
IPO. In this mechanism the ownership of these corporations are extended and
resultantly, it prevents unnecessary concentration of power in specific groups and
classes. (Goher Fatima, Wali ur Rehman, Jan , 2012)

PRIVATIZATION POLICIES OF PAKISTAN

Privatization is one of the options with the government to enhance their production
Capabilities and improve the productivity of the state-owned entities, when they are
observed to be underperformed.
Pakistan started privatization in order to:
1.
2.
3.
4.

Increase the efficiency of the enterprise

Generate more revenue
Have broad base ownership
And to develop capital market.

Privatization of the state owned enterprises in Pakistan started in 1988.The privatization

policy of Pakistan was based on the following principles:
1. Privatization will be conducted for the benefit of all, not for the privilege of a few.
2. Privatization should make local industries and services more efficient and
competitive
3. Within Pakistan and overseas.
4. The whole procedures of privatization should be transparent.
5. In case of certain units such as major utilities or banks there will be a process of
prequalification. (Goher Fatima, Wali ur Rehman, Jan , 2012)

Power Generation
Power generation is the process of generating electricity through different sources and
facilitates people with electricity. The process of power generation was started in late
1820s and early 1830s. Power generation in Pakistan is done through many different
sources.
The sources which are used in generating power are:
1. Hydro
2. Thermal
3. Wind
Hydro power generation
From this source, electricity is produce through water. The flow of water helps in moving
the turbine which produces the electricity.

Thermal power generation

Another source through which electricity can be produce Electricity is produced with the
help of Coal, Oil and Gas, which help in heating the water and the steam of water
moves the turbine which produce electricity.
Wind power generation
Another source of generating power. Flow of wind moves the wind turbine, which
generates electricity.

Chart showing the performance of WAPDA and KElectric

WAPDA

2011

Out put

Total Number of
subscribers(residential and
non-residential) at the end of
the year(2011,2012,2013)

20.12 million

Output

Total electricity sold per year

(in MWHs)

17304 MWHs

Total energy sold per year

2012

20.85 Million

19204MWHs

2013

21.58 M

21,103 MWHs

5588681557

5,638,873,730

6,196,564,539

14,856

15,682

17,700

Labour

Number of employees

Efficiency

Energy lost in the

distribution(due to technical
losses and illegal
connections)

20.9% 90Bn
Rs over last 5
years

20.9% 90Bn Rs
over last 5 years

20.9% 90Bn Rs
over last 5 years.

Quality

Average duration of
interruptions per
consumer(hours/years)

3102 Hours/
Year

3285 hours/year

2880
Hours/years
average

Coverage

Number of residential
subscribers per 100
households

38% are
residential
subscribers

40.3% are
residential
subcribers

44.2% percent
are the residential
subscriber of
21,103MWHs.

Prices

Average tariff for 1 MWH for

residential service in rupees

8.63 rupees

10 rupees

12.056368

KESC: Sale of GOP Shares For Only 20 Million Rupees

KESC

Out put

Output
Labour
Efficiency
Quality

Pre-Privatization

Total Number of
subscribers(residential and nonresidential)
Total electricity sold per year (in
MWHs)
Total energy sold per year
Number of employees
Energy lost in the distribution(due to
technical losses and illegal
connections)
Average duration of interruptions per
consumer(hours/years)

Post-Privatization

2.5 million

2.5 million

7286

10059

7286
8653

10059
10962

2.5%

2.5%

2190

730

Coverage

Number of residential subscribers per

100 households

100

100

Prices

Average tariff for 1 MWH for

residential service in rupees

12

Chart Title
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Number of employees

Average duration of
interruptions per
consumer(hours/years)

Pre-Privatization

Average tariff for 1 MWH for

residential service in rupees

Post-Privatization

KOT ADDU POWER PLANT: Sale of more than 20% shares through stock
exchange for only 4.6 million rupees.
We had two tides of privatization all over the country. Initial phase was started from
1992 to 1994 and the next phase from 2001 to 2002. Initially assets pricing Rs.120
billion were stripped and then Rs.65 billion was privatized.

IMPACT AND ANALYSIS OF PRIVATIZATION IN PAKISTAN

PUBLIC MANUFACTURING ENTERPRISES.
The reports show only 22% of the privatized units were accomplishing better than in the
nationalized period, 44% roughly the identical and approxly 34% poorer than before. It
is fairly comprehensible that the convincing reasons for transfer of that of enlightening
firms were the efficiency of the units was only achieved by about 1/5 of the units.
Kot Adu was main denationalization in the course of Benazirs next term as Prime
Minister.
There was no necessity to denationalize a current big power unit which ran efficiently.
The entities were each with gas turbine or combined cycles which can use either oil or
gas. Gas is most cheap than oil for generating electricity and Kot Adu was consecutively
running with gas. Though, the government took major step to hawk 26% stake at a price
of US 215 million. Afterwards, 10% shares were privatized for US76 million and the
management grasped only US$291 million from the deal of 36% share.
The new and the oddest step of the government of that time was that they handed over
the authority to minority stockholders, which perhaps hasnt been privatized in the
business olden times of the world. It was written in the sales contract that about the nine
directors, four independents, four nominees of the buyers and one of WAPDA. As a
outcome of law court interference it was categorically ordered that there would be seven
directors, four nominees of WAPDA, two nominees of the buyers and one CEO chosen
jointly by WAPDA and buyers. Though, it intended that while the government is the
prime stakeholder yet it will have no illustration on the board as the foreigner buyers
dont want government interfering. Initially it was certain that after denationalization
KAPCO will market power to WAPDA at a tariff of 5.6 US cent per KWH. Afterwards this
tariff was condensed to 4.9 US cent per KWH. WAPDAs price of generation at Kot Adu
with gas feed stock was not more than 2.5 US cent per KWH. Henceforth, the
management received US$291 million but W APDA became insolvent organization after
the sale of KAPCO and tracing up of other autonomous power plants like HUBCO.
The external party deported the total sum of US291 million throughout the previous six
ages and WAPDA is being responsible to pay double the rate at which it was making
power at KAPCO beforehand denationalization. This is the poorest denationalization in
Pakistan. In point the entire program of IPPs has awfully defoliate WAPDA and its
customers all over the nation state are suffering since WAPDA has to pay such great
rates to the IPPs with KAPCO and HUBCO. The electricity tariff in Pakistan which is
appeared to be the uppermost in Asia has also made the business hostile in world
market. Invalid source specified.

PUBLIC PRIVATE PARTNERSHIP INVESTMENTS IN ELECTRICITY

GENERATION BY FUEL:
WAPDA is a government owned organization but has many ongoing projects with
partnership with many private firms that work in collaboration to generate power for the
country and take out the nation from the current Pakistan electric crisis. These public
private partnerships work together to generate electricity with fuel along with other
sources like hydral and solar and wind based projects.Invalid source specified.. The
following are the ongoing public private partnership projects. These public private
partnership projects have been established with the collaboration with the government
of many countries like Germany and Austria and have contributed to the production of
over 2000 megawatts of electricity. (Khawaja Asif Mehmood and Muhammad Zahir
Faridi, 2013)

Sr #

Name of Project

Location/River

1.

Lower Palas Valley

Hydropower Project
Lower
Spat
Gah
Hydropower Project

KPK/ Left Tributary 665

of Indus
KPK/ Left Tributary 496
of Indus

2.

3.
4.
5.

6.
7.

Power (MW)

Mahl
Hydropower AJK/ Jhelum
Project
Matiltan Hydropower KPK/UShu
Project
Lawi
Hydropower KPK/Shishi
Project

600

Gulpur
Project
Kotli
Project

Hydropower AJK/Poonch

100

Hydropower AJK/Poonch

100

19
70

CONCLUSION AND SUGGESTION:

The electric sector of Pakistan is standardized by the greater line losses, low financial
performance, and crawling productivity growth. That is all because of the various
reasons. Under such circumstances, low pricing and subsidizing are found to be much
more difficult for the public to enjoy the low tariffs. Although WAPDA was characterized
to set a price as per the long run marginal cost, which later on didnt achieve. WAPDAs
default payments also played a vital role in the bankruptcy of this organization.
These are the reasons that WAPDA need to get privatized as the KESC was privatized ,
which is now playing a tremendous role within the boundaries of KHI , they initially
sought out with the line losses , later on they took the decisions which are very hard for
any organization to take specially for WAPDA its very hard to take such decision.
They declared NO LOAD SHEDDING to those areas, where the recovery of bills was
above 90%, and the theft was totally eliminated. Today majority of the areas are under
that NLS policy.
But it would be impossible for WAPDA to implement such strategies without being
privatized because the management of WAPDA is influenced by the Law makers of our
country.
The wholly and solely strategy to apply up till now is to privatize the WAPDA partially by
26% as we have the great example of KESC and PTCL which are showing surplus
figures after getting privatized and the customers also satisfied with the performance of
these companies.

REFERENCE

Goher Fatima, Wali ur Rehman. (Jan , 2012). A REVIEW OF PRIVATIZATION POLICIES IN PAKISTAN.
INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS, VOL 3, NO 9.
Khawaja Asif Mehmood and Muhammad Zahir Faridi. (2013). Effects of Privatization on Economic
Performance in Pakistan. IDOSI Publications, 729-743.
Rehman, G. F. (2012). A review of privization policies in Pakistan. Interdisciplinary journal of
contemprary research in business, 1017-1032.
Umaid A Shaikh , Sadaf Ehsaan. (Sep. - Oct. 2013). Effect of privatization on economy and its adverse
effects on Economy. IOSR Journal Of Humanities And Social Science (IOSR-JHSS), PP 34-61.
Weiss, A. G. (1999). privitization of electric power sector in Pakistan: Some important issues. The
Pakistan Development Review, 69-84.