Privatization of WAPDA:

Workers and Consumers Concerns

And the
National Concerns

By: Mazhar Arif

 C O N T E N T S
1- Introduction
2- Privatization in Pakistan
2.1 Rationale for privatization
3- Privatization of power sector
3.1 IPPs and allegations of bribery
3.2 Army in WAPDA—workers union suspended
3.3 Regulation
3.4 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 capital
4.3 Management problem
4.4 Consumption patterns—a policy issue
5- Privatization of utilities—a failure
6- Social dimensions and impact of privatization on workforce
6.1 Employment
6.2 Industrial relations
6.3 A participatory approach--the necessary connecting thread
7- Privatization and democracy
7.1 Pressures on Democratic Institutions
7.2 Multilateral bias
7.3 Cronies and corruption
7.4 Perversions of justice
7.5 Human rights and trade union rights
7.6 Loss of control
7.7 Secrecy
7.8 The Democratic Backlash
8- Resistance against WAPDA’s privatization
8.1 WAPDA workers protest campaigns
8.2 Demand for inquiry commission
9- Power Sector and Consumer Concerns
9.1 Pricing & Tariff Concerns
9.2 Universal Access to Basic Services
9.3 Regulation
10- Privatization and national concerns
10.1 Control on national economy
10.2 Regional inequalities
10.3 Division of royalties among federating units
11- Recommendations
12- References
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 the
city has seen in years -- but more shocking was the manner in which the country's
commercial and business capital was treated by WAPDA. The breakdown thus came as a
result of problems between the two companies. But the reality is that due to such
disputes, it is ordinary citizens who suffer most.

The KESC chief had already warned that would be the case, while Karachi's residents
recall the terrible months last summer when prolonged shutdowns led to riots, protests
and 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 to
pay 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 and
total switch off.

A leading English newspaper while narrating the troubles of Karachites says this callous
attitude though needs to be rectified, the fact also is that KESC itself is in a mess, the
Rs1.5 million per month being paid to a retired general of the Pakistan army to run the
utility, notwithstanding. KESC's privatization has apparently failed miserably as the
company has gone into billions of losses in a very short time, although it had been
handed over to the buyers with a clean balance sheet. The company has not added even
one megawatt of new power and its management, run mostly by retired people, has failed
to show any promise or hope.

There is a great deal to be answered for, and some of these questions will undoubtedly
come up in the new parliament. The new governments at the centre and in Sindh will
have to grapple with this crisis from day one, especially with summer approaching. While
there 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 possibility
of cancelling KESC's privatization and reversion to WAPDA control should be seriously
considered. The utility's transfer to private ownership was not without controversy, like
many other privatizations of the Shaukat Aziz government. The new owners promised a
lot 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 heavens
would not fall if this was done in the country's best interest and for the sake of law and
order in a city which needs it most. (1)
Just after two months, perhaps in response to the woes of Karachites and people from all
over Pakistan, WAPDA came under fire in the Senate over what lawmakers called its
lavish spending and deficient planning and abetment in power theft which has caused the
worst power shortage in the country’s history. Speakers from both government and
opposition sides severely criticized WAPDA management and called it a highly
inefficient and mismanaged organization and said the organization was responsible for
record 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 sheep
in WAPDA and said the government would not tolerate slackness, misappropriation and
mismanagement on the part of WAPDA management. “WAPDA is supposed to serve the
country and its people and I will not allow the people usurping the rights of the people to
stay in the organization. Saving one per cent of line losses would mean a saving of
Rupees four billion. We are trying to put in place a system to nab big fish responsible for
line losses as we want to restore the status of WAPDA as a profitable and an ideal
organization 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; it
is 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 and
misappropriation responsible for the power mess in the country. The minister expressed
the government’s resolve to make WAPDA a “profitable and ideal organization it once
used to be”. Perhaps, it was first time after many years that none of them talked of
privatization of the utility organization.

2- Privatization in Pakistan

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

Privatization of economy was systematically initiated by the Nawaz Sharif government in

early 1991. In 1991, Privatization Commission for Industries was set up by the
government to regulate and manage the process of privatization of stat-owned industries
and enterprises. A year later in 1992, Privatization Commission for Power Sector was
established.

Next year in 1993, Expanded Privatization Commission was formed, which was set up to
undertake 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 expanded
Commission. However, the powers of the Commission were limited, and various
executive bodies of the Federal Government continued to exercise their power over it.
Later, a Cabinet Committee on Privatization was also established, which worked till
1998. However, in September 1998, Privatization Board of Pakistan was formed in
addition to the Privatization Commission. The Board was headed by the prime minister.
The Board functioned for a year till September 1999. However, the Economic
Coordination Council of the federal cabinet as well as the cabinet too played their role in
the privatization in Pakistan decision-making processes.

The Shaukat Aziz government introduced a new Privatization Law and instituted a new
Ministry for Privatization. The law has converted the Privatization Commission into a
corporate body, independent of any federal Ministry. Before that, there was no specific
privatization 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 of
privatization proceeds. What is note-worthy in the law is the fact that it makes it
obligatory for the federal government to spend 90 per cent amount generated from
privatization for debt retirement, and spend the rest 10 per cent for poverty alleviation.
The newly instituted Ministry of Privatization has the responsibility of privatizing around
49 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 privatization
programs for different reasons. In Pakistan, however, shares in profitable state-owned
enterprises were sold in order to raise government revenues. The stated goal of the
government was thus to raise the revenue for debt retirement. However, the privatization
proceeds have not been spent for the purpose for which privatization was actually
pursued, and the revenues have been spent elsewhere. (3)

2.1 Rationale for privatization

The central argument for privatization revolves around efficiency. It is argued that
governments have grown too fat to effectively handle the delivery and provision of public
services. It is also asserted that the decline in the quality and performance of public sector
services is largely due to ‘politicization’. These departments also suffer from bureaucratic
irregularities, official arrogance, and corrupt and socially irresponsible practices which
cause major obstacles to efficient provision of services. According to the proponents this
can be put to end by de-bureaucratization, deregulation, and involving the private sector
in 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 in
service delivery.

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

3- Privatization of power sector

The Government of Pakistan formulated a power policy in 1994 to permit the private
sector to invest in the power sector and ensure sufficient generation capacity. The policy
allowed full flexibility to independent power producers (IPPs) to bring capacity on line as
quickly as possible at predetermined power purchase prices. The government guaranteed
implementation, fuel supply, and power purchase. By 2001, the private sector’s share of
installed capacity reached 5,551MW, all of which were oil-fired thermal plants.

Because of the power sector’s poor operational and financial performance since the mid-
1990s, the government decided to restructure the sector as the government claimed “from
an inefficient state-controlled monopoly to a competitive, market-driven system”. Its first
step was to amend the WAPDA Act in December 1998, which allowed the establishment
of the Pakistan Electric Power Company (PEPCO) for unbundling of the WAPDA’s
Power Wing into eight distribution companies (formed from existing area boards); three
generating companies (comprising 11 of Wapda’s generating plants); and the National
Transmission and Dispatch Company (NTDC). The restructured power sector was to
consist of (i) competitive generation with independent system operators and a bulk power
market; (ii) unbundled, open, and undiscriminating access to transmission and
distribution services; and (iii) an independent regulatory body for effective market
governance.

The second step of the government’s plan was to (i) sell PEPCO’s generating and
distribution companies and (ii) privatize Karachi Electric Supply Corporation (KESC).
The transformation of the power sector into a privatized electricity market was expected
to take a number of years and would comprise two phases. In the first phase, the system
was to be a single buyer type where all electricity would be bought by NTDC from
various 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 the
distribution companies and large consumers would have a choice of which generating
company to buy from. (5)

3.1 IPPs and allegations of bribery

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

In 1997 the then government of Pakistan pursued cases of alleged bribery in relation to
these electricity contracts. Two contracts - one involving Southern Company (USA), and
another involving National Grid (UK) -- were cancelled on the grounds that they had
been improperly obtained. In 1998, faced with un-affordably high prices for electricity
required under the PPAs, the government also brought proceedings for alleged corruption
against other IPPs, stating that it would cut the price of electricity agreed under these
contracts. The main target of these investigations was Hubco. The IMF, the World Bank
and the UK government all urged Pakistan to drop its corruption case against Hubco. As
a result of all this pressure, the Pakistan government in December 1998 dropped the
prosecution of Hubco.

3.2 Army in WAPDA-workers union suspended

A week later, the prime minister instead turned on Wapda, suspended trade union
activities, and handed over control of energy transmission to the army (this was before
the military takeover of Pakistan government itself). The union was suspended by
presidential decree, which abrogated the right of the union to operate, even as a
bargaining agent. One week after the military takeover and the suspension of trade unions
in the organization, the World Bank authorised the IMF to proceed with a US$1.3 billion
bailout package for Pakistan, ‘as it was satisfied with the government assurances for out
of 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 monopoly
business, setting and enforcing performance standards and codes of practices, enforcing
competitive policies, and setting charges for the monopoly parts of the industry. It is also
mandated to protect consumers against monopolistic prices, encourage efficiency in
licensee operations through financial incentives, encourage economic efficiency by
promoting competition, and eliminate cross-subsidies between regions and consumer
groups. According to ADB, however, the regulatory agency lacks predictability and
transparency.

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 key
shortcomings of Pakistan’s PSEs, as described by international financial institutions
(IFIs) are: Poor governance; Political and bureaucratic interference; Institutional
weakness; and Lack of professional management. In the 1990s, IFIs like the WB, IMF
and ADB asked the Pakistan government that the fiscal situation could not improve
unless and until the losses from PSEs are substantially curtailed or eliminated, and that
this was only possible through a massive restructuring of these entities leading to their
privatization.

In the power and energy sector, the WB and ADB supported the government’s plan for
the restructuring and privatization of the energy, oil and gas sectors, and provision of a
legal framework to implement the Oil and Gas Reform Program in addition to
strengthening the regulatory framework. The World Bank under the SAL (Structural
Adjustment Loan) approved in 1999 US$350 million for working on the power sector to
restore financial viability of Wapda and KESC to ensure line losses are reduced,
distribution is improved and cross-arrears between energy utilities and governments are
settled. It also envisaged formation of the NEPRA, to regulate the power companies and
provide necessary comfort to investors and consumers. The World Bank was also
responsible for converting the various distribution centers of WAPDA into corporate
entities 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 readers
that foreign investors are eager to invest in Pakistan. But the moot point is, where do
these eager beavers want to invest their money? Not in manufacturing or agriculture, or
anything with an export bias, but in the stock market and the services sectors like
banking, oil marketing and telecom which create headline-making employment at the
prohibitive cost of heavy imports and profits repatriation. That is where most of the
foreign investment has gone in the last five years. And those are the sectors the WSJ has
identified 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 process
immediately if it wants these eager investors to return to Pakistan. The point to be
emphasized is this: true it is not the business of the government to be in business. This
activity is best done by entrepreneurs who understand the dynamics of demand and
supply and know how to take calculated risks and pay for making wrong calls. A
government 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 bloated
their profit margins by skimping on taxes and utility bills. One would therefore question
the idea of privatization. If the family silver is sold to those who make a killing in our
undervalued markets for repatriation purposes, one is only adding to one’s current
account burden in return for an insignificant improvement in the job situation. Of course,
foreign investment flows even in export-oriented manufacturing and agriculture sectors
also entail profit repatriation but export earnings from these enterprises do contribute
significantly to decreasing one’s dependence on foreign debt and reducing pressure on
the 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-seeking
entrepreneurs have so far failed to exploit these advantages to enter high-end global
markets for these goods. Also, Pakistan has reached the frontier of its extensive farming
strategy, 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)
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 sold
to a party which does not have the professional, technical and management skills to run
it, no matter how burdensome it has become for the seller’s budget. This aspect was
woefully ignored while privatising the KESC. The utility was sold to a group that had no
previous experience of being in similar business. The foreign buyer, under the name of
KES Power Ltd, a company incorporated in Caymen Islands, comprises 60 per cent
shares by Al-Jomaih Holding Co. and 40 per cent by National Industries Holding of
Kuwait through its subsidiary Denham Investment Ltd created in 2005 especially for the
purpose. 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 and
suppliers 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 KESC
is now being managed by a retired general with no experience of running a power utility.
(9)

Pakistan Steel Mills

The Supreme Court of Pakistan’s decision regarding cancellation of privatization of
Pakistan Steel mills proved apprehensions of many that it was the biggest scam in the
country. Earlier, representatives of labour, political, social and human rights
organizations expressed their strong reservations over the process of the privatization of
the Pakistan Steel (PS), and described the sale of the national asset as the worst example
of loot of national asset.

They pointed out that the Rs300 billion worth concern had been handed over to the
private sector parties at a throw-away price of Rs21.75 billion. They claimed that under a
pre-planned conspiracy, it had been handed over to some favourite parties. They alleged
that it was already decided to hand over the PS to a consortium of Russia’s Magnitogorsk
Iron & Steel Works Open JSC, Saudi Arabia-based Al-Tuwairqi Group of Companies
and a local firm Arif Habib Securities whereas the bidding process was for its
privatization was just an eyewash. They wondered that the auction, which the
Privatization Commission had taken one whole year to prepare for, lasted just 30
minutes.

They pointed out that it was only a day before the auction was held, that a $130 million
steel factory, Al-Tuwairqi Steel Mills, was inaugurated and a piece of 220-acre land was
obtained on rent from the PS for the new concern. They added that 45 million cubic feet
gas 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 higher
price even if sold as scrape.

They said that only two days before the auction, the Al-Tuwairqi Group had signed Head
of Terms (HoT) with the Sui Southern Gas Company for the supply of 45 million cubic
feet natural gas for 10 years and the contract was extendable for another 10 years
The said that before the privatizing of the PS, all bank loans outstanding against the mills
had been paid off so that the new owners did not have any liability. In this regard, they
added, 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 2000
and its pre-tax profit stood at Rs 4.85 billion. They recalled that on Oct 25, 2005, PS
chairman Gen Abdul Qayoom addressed factory workers and announced that in the year
2004-05, the mills had generated Rs 31 billion revenues and its pre-tax profit was Rs10
billion. 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 of
Rs 20 million per acre, is around Rs92 billion whereas the mills’ other assets have been
estimated 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 worth
more or less the same amount. They claim that the PS is maintaining a production
capacity of 98 per cent and its profit is on the increase every year. They question the
justification for the sale of the PS when the factory is functioning well, its workers
making no major demand and the mills paying over Rs9 billion per year tax. (10)

PTCL
The Pakistan Telecommunication Company Limited (PTCL) management has cut the
local call duration from five to two minutes between 8am and 9pm. And from 9pm to
8am 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 reduced
local call duration is a rude awakening for the company’s subscribers, the PTCL union
says the ‘new packages’ are actually meant to make up for the huge deficit of over Rs9
billion the company is facing.

Those who do not read newspapers are not aware of the latest cut on the local call
duration. Most of the housewives are in the habit of making long (local) calls to their
close relatives and friends everyday. They will learn about the cut only when they receive
their April bills in May. According to PTCL Union Action Committee Secretary-General
Malik Maqbool Husain, “fleecing customers appears to be the only option the PTCL is
left with to make up for its deficit. The switching of its 937,000 subscribers to other
networks 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, the
PTCL was in Rs29 billion profit. Apart from the local call duration reduction, the
controversial Pakistan Package ‘imposed’ on the PTCL subscribers three months ago has
now 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 were
free up to 5,000 minutes on a monthly charge of Rs199 and taxes. The subscribers, who
were not interested in it, had been given an ‘option’ to deactivate their line (from the
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 from
5,000 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 mandatory
on them in case they don’t choose one of them till March 31, 2008. However, from April
1, Vfone Kafayat package had been ‘imposed’ on those who did not choose the other two
with 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-called
volunteer scheme. (11)

4.2 Privatization: feast for vulture capital

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

If the market does not have the appetite for state units, an ill-timed privatization will most
probably be seen as a distress sale by sole individual buyers. Such moves may benefit the
foreign vulture capital and may not lead to genuine privatization. The country abounds in
examples where privatization was done to strengthen crony capitalism and not on the
basis 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 the
region 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 by

consultants of the Asian Development Bank shows that only 22 per cent of the
privatization units (first phase of sell-off) were doing better and performance of 34
worsened. On the whole, the objective of privatization has not been achieved. And in the
changing international scenario after 9/11 and specially in the context of threat of war in
Iraq, the sale of strategic assets has implications for the economic sovereignty. (12)

4.3 Management problem

Privatization in Pakistan has taken a quantum change over the past 15 years but at present
its rationale seems to be quite murky. It is imperative to understand the reason detere' of
this activity in the West- which in fact would be the UK of Margaret Thatcher. It was
very simple then. It was thought that the government's size stood bloated just because of
the huge public sector and that pruning of the same remained the only option left to stop
the continuing losses.
Privatization is being pursued in the SOEs on account of perceived (and also actual)
mismanagement and overstaffing, inappropriate and costly investments made in the past
and being made at present, poor quality and inadequate coverage of services, high debt
and fiscal losses and production and profits levels that are well below potential.

Correctly, but without taking any cue from it, the Privatization Commission also
understands the reason for the continuous decline of the SOE attributing all this to the
undue pressure on these enterprises by decision makers, the appointment of favourites to
top-management positions regardless of their qualifications and the red tape and
complicated procedures peculiar to the government. It then goes on by itself to impliedly
confirm that it all is a management problem, but which cannot ever be corrected even
after 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 opine
that 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 desired
results. It cannot be held against the SOEs or their ability to deliver. Non-professional
management is indeed cronyism and nothing else or at the least bad governance. So, in a
way, SOEs can be brought out of their present morass, first, through good governance at
the decision making government level and then through induction of professional
management 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 a
dispensation nearly having no advantage for anyone but a few who normally do
inordinately benefit from such scheme of things. Actually, it is a prelude to the negative
aspects 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 be
paid for or bought-up by the nascent private sector. In case the domestic private sector
joins in to buyout the SOEs (inclusive of the infra-structure and the utilities), it would not
be left with anything worthwhile to invest elsewhere which all is not a praiseworthy
scenario. (13)

4.4 Consumption patterns—a policy issue

The outgoing government of Mr Shaukat Aziz boasted high growth rates but could be
faulted on vision, which means it lacked a proper assessment of the future energy needs
of the country after the State Bank unleashed consumerism on the country’s middle
classes. It caused “food inflation”, followed by “food shortage”, but more lethally it
failed to anticipate the energy needs of a population with cheaply borrowed money in
hand and new Chinese split air-conditioners flooding the market. The energy
requirement, which used to increase by less than 10 percent, shot up to 20 percent last
year! Will Pakistan catch up? Estimates are that the energy gap will be filled by 2010.
Till then the population will suffer and continue to become more and more violent. That
is, if the target year 2010 is realistic.

The consumption of electricity by various economic groups has assumed a pattern

characteristic 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 industry
and agriculture has in the meantime declined from 39.7 per cent and 23.8 per cent to 28.9
and 18.3 per cent respectively. This, by all standards of a developing society, is a
dangerous trend. It may indicate prosperity and give the impression of enhancing the
quality of life, but in real terms it reflects on the un-productive use of electricity, which is
a characteristic feature of a pseudo-affluent society.

The social setup of this country has unfortunately become consumer-oriented during the
last 25 years and the trend is clearly towards its becoming a consumers' market, as part of
the New Economic Order which requires that all economies be aimed at an open market
system. Pakistanis have responded very positively by importing, or else smuggling
commodities, instead of manufacturing them locally. It is this consumerism which has
filled each home in the rural and urban areas with electrical appliances.

The increase in communication facilities and the consequent increase in the mobility of
people have resulted in the purchase of electrical items. The purchase of such appliances
and 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 the
consumer behaviour. The beneficiaries are the industrialized countries which market their
commodities.

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 every
month through corrupt practices but are shown as power losses. The heavy load to meet
the domestic requirements and of illegal connections is responsible for power breakdown
and load shedding. The overall inefficiency in management allows pilferage in the
distribution system, which is compensated for by the Wapda by raising the tariff.

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

5- Privatization of utilities—a failure

Privatization of utilities in the developed states has also been a failure. Case studies of the
UK, Australia, Argentina, Brazil and Chile confirm that privatization is always against
the public interest and thus benefits only the investors. In the process many a government
has lost the goose that used to lay golden eggs. Additionally, the private sector's cost
cutting agendas invariably resulted in job loss- anathema in Pakistan at least. And to add
up to the woes of the present governments in the above listed countries, it was seen that
subsidies had to be doubled as the new operators refused to do anything by way of social
obligation. The quality of service too went down.

All this further substantiates the thesis that utilities are different from other ventures and
thus 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 odds
with the regulators. Another important requirement is the need for a neat dovetailing of
the national policy with running of the utilities especially for a developing country like
ours. This is further magnified when centralized planning takes precedence over
decentralized activity as is the case in Pakistan. Such a type of planning- incidentally a
must for building basic infra-structure blocks- requires end implementation teams that
agree to the national edicts.

In short, privatization of the utilities cannot ever be contemplated before a basic

minimum developed infra-structure is already in place. At this stage the normal question
would 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 privatization

on labour emphasize upon the need to understand and address the repercussions of the
ongoing transformations on the workforce. The studies warn that cost-cutting that leads
to lower employment, reduced training opportunities, and poorer working conditions can
backfire. The best workers may leave and the remaining workforce, demoralized, may
reduce its work effort. Many water, gas and electricity services, particularly in
developing countries, are experiencing serious shortages of skilled personnel.
Retrenchments, sometimes massive, pose particularly serious problems in the current
high-unemployment context. Their consequences may be far-reaching, going beyond the
economic sphere and even affecting social and political stability.

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

6.1 Employment

Employment losses almost always accompany adjustments in the public utilities, both
under privatization and under restructuring schemes. Employment reductions may occur
before privatization, as governments try to render the company more attractive to
potential buyers or operators. They may occur during the privatization process, or some
time after it. In some cases they have accompanied all three stages. In many instances
worldwide they have indeed been massive. It is not unusual to see the workforce slashed
by 30 to 50 per cent. According to the studies, employment cuts were found to be
somewhat more severe under certain forms of privatization, namely contracting out and
total privatization; and when there occurred a combination of privatization and
restructuring 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 been
occurring in times of economic recession and high unemployment. This makes it all the
more difficult for retrenched workers to find alternative occupations and sources of
income for themselves and their families, and for governments to assist them, and
generally worsens those problems. In a sense, the substantial costs of privatization and
restructuring may be passed on ultimately to governments and society.

6.2 Industrial relations

Privatization generally affects unionization, bargaining patterns and collective

agreements. 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 in
private companies, privatization may well bring improvement. But in a good number of
cases, unionization and industrial relations come out weakened from privatization and
restructuring processes.

The national political context and habits play a key role in determining the pattern of
industrial relations, even after privatization. The studies found that even foreign
companies that become the owners or operators of a public utility seem to adapt their
policies 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 of
multinationals as these are becoming major protagonists in water, gas and electricity
services, in the wake of privatization and liberalization processes. Their transnational
nature is reflected in their economic behaviour and human resource strategy, including
bargaining 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 and
high-quality services when planned and implemented with the full participation of public
sector workers and their unions and consumers of public services at all stages of the
decision-making process. " 5

The evidence from our studies confirms that an involvement of all stakeholders in
privatization and restructuring processes is a prerequisite for success. The active
participation of employee representatives and, for a number of matters, also of the users
of those water, gas and electricity services undergoing such changes, holds the key to
solving or easing most of the challenges of those processes. Yet, ironically, our evidence
also shows that this is the issue on which achievements have so far fallen the furthest
short 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, privatization
is a highly political process in which the powers of the state, international agencies, and
national political institutions are deployed to achieve the transfer of public services to the
domain of private companies.

7.1 Pressures on Democratic Institutions

The pressures in favor of privatization which cascade down onto democratically elected
bodies include systematic political bias by global institutions such as the World Bank,
central governments seeking to usurp the powers of local government, collaboration with
local elites, the undermining of local judiciaries, and the abuse of human rights and trade
union 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 a
powerful position to persuade governments and others to comply with privatization
agenda because they are the single most important source of loan finance for
infrastructure investment. The World Bank’s equity investment division, the International
Finance 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 for
Reconstruction and Development (EBRD) issued its first loan of £90 million for
municipal services in Central and Eastern Europe in 1995. The money went, not to a
country, but the Lyonnaise des Eaux. A few months later, in June 1995, Thierry Baudon
left his post as deputy vice-president of the EBRD to join Lyonnaise des Eaux as
managing director of international project finance.

7.3 Cronies and corruption

Corruption is a standard feature of privatization and contracting-out. Naturally so—the

profits 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 is
prevalent throughout Western Europe, home to some of the key multinationals in the
water 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 it
comes to ruling on disputes over the legitimacy of privatizations. Multinationals have
devised various tactics for subverting or bypassing local law. Apparently, the “rule of
law” is less sacrosanct when it risks finding against the companies’ interests, as the
following 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 Philippine
government with several rulings against its privatization policies, which prompted near-
hysterical reactions from multinationals and the Western governments representing their
interests. “Loud complaints about ‘terrorists in robes’ have resonated in government and
business circles in the past month as the courts delivered a series of blows to investor
confidence with controversial rulings against the state’s privatization programme.”i
Formal protests by the entire community of Western governments contained the standard
threats of investor withdrawal.

In 2007, the Supreme Court of Pakistan’s decision regarding cancellation of Pakistan

Steel 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 reported
that 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 at
Pakistan's national energy authority WAPDA as a result of the privatisation process
too.

Pakistan and the Corruption of Power

David Hall and Jan Willem Goudriaan quote the case study of Pakistan: In December 22,
1998, Pakistan’s Prime Minister, Nawaz Sharif, suspended trade union activities in
the Water and Power Development Authority (WAPDA). The union in question is
the Pakistan WAPDA Hydro Electric Central Labour Union. The union has been
suspended by presidential decree, which abrogates the right of the union to operate,
even as a bargaining agent; allows WAPDA workers to be forcibly retired without
explanation; hands over control of energy transmission to the army; and stipulates
that anyone charged with stealing energy resources will be tried in the military
courts.

Meanwhile, the government has installed 35,000 junior commissioned officers and some
250 officers of the Pakistan army in the eight transmission companies and one
distribution company that now constitute WAPDA. Eight brigadiers have already taken
charge of energy transmission. The army will “assist” the power company in a variety of
capacities, from reading meters and delivering bills to detecting cases of electricity theft
and staffing public complaint centers. Over 150,000 workers are employed by WAPDA.
According to the government, the present measures are justified by the heavy losses
experienced by WAPDA, which it attributes to a 26 percent theft rate in electricity
output. However, the main reason for WAPDA’s losses is the cost of buying the power
supplied by private “independent power plants” (IPPs), which were set up with World
Bank financing under Benazir Bhutto’s government. Hubco, the biggest IPP and the
largest company quoted on the Pakistan stock exchange, is controlled by National Power
of the U.K.

In Senegal, trade union leaders were imprisoned for 6 months in 1998 for campaigning
against the privatisation of the state electricity company, SENELEC. Requests for bail
were repeatedly turned down, members of local human rights group RADDHO were
denied 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 western
India, local demonstrations and opposition was met with severe repression by police and
security forces. Amnesty International later issued a report criticising the process, and a
further report from Human Rights Watch said that Enron had been complicit in "serious
human rights abuse". In the UK, the government of Margaret Thatcher encouraged
private contractors to take over cleaning, catering and waste management functions of
hospitals and local authorities, and allowed tens of thousands of hospital and local
authority workers to be dismissed and forced to re-apply for their old jobs on worse
terms. This was in breach of European laws, and the Thatcher government was advised
that it was in breach of European laws. In 1998 the UK government conceded that these
workers 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 entire
population. In the case of Aguas Argentinas, the concession contract required the
company to extend water connections to shantytown dwellers regardless of their ability to
pay. But the company insisted that someone had to pay, or it would stop operating the
service altogether. The government tried to foist responsibility onto local councils, which
refused, arguing they had not received the financing. The company then decided to exact
a surcharge from wealthier customers in the form of a “solidarity tax”—a rare instance of
a 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 of
public policy was reduced to a civil dispute between consumer groups and a
multinational.

7.7 Secrecy

A valuable asset for commercial companies, secrecy is the enemy of public

accountability. At the behest of multinationals, contracts under which public utilities are
privatized are frequently withheld from the public, so that it is impossible to determine
what is actually required of a company. The consequences of such a strategy were
demonstrated in Hungary in 1998. Budapest town council had sold 25 percent of its water
company to a private consortium, but the new contract was declared a secret document to
which even senior council officials were barred access. In the first year, the company
informed the council that it would have to pay a subsidy to cover an operating loss. The
validity of the company’s 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 plans
have been scuttled in many locales. Trade unions have played a central role in nearly all
the campaigns to maintain public-sector provision of services. Public Services
International (PSI), which monitors privatizations globally through its research unit,
provides support and information to unions conducting these campaigns. Privatization is
not 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 demonstrate
that democratic politics can reverse privatization plans, or force them to take account of
the interests of local communities and workers. (17)

8- Resistance against WAPDA’s privatization

The Pakistan Wapda Hydro-Electric Central Labour Union has advised the government
to desist from privatizing WAPDA’s power distribution companies as privatization would
result in an increase in electricity rates and winding up of the rural electrification
programmes. Union secretary general Khurshid Ahmad and other leaders say the
government should protect the interests of the consumers.

They say the Benazir government’s decision to purchase power from the private
companies and privatization of power houses like the Guddu had resulted in a sharp
increase in electricity rates on one hand and economic destabilization of the WAPDA on
the other.

They argue California in United States and New Zealand are the only countries so far
where power distribution had been privatized. In New Zealand, electricity rates are
doubled and in California quadrupled after the privatization. Results will not be different
in 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 campaigns
against privatization of WAPDA. Union members have taken out processions and held
rallies in different cities of the country from time to time to urge the government to desist
from privatizing the organization. The slogan-chanting workers have urged the federal
government not to privatize profit-earning organizations like Wapda at the behest of the
World Bank and IMF.
They say Pakistan is not a colony of the world financial institutions which are destroying
the national industry in the name of liberalization and privatization. Union’s president
Abdul Latif Nizamani and secretary general Khurshid Ahmad allege that the government
has sold profit-earning units at throw-away prices to industrial tycoons who are
responsible for the present state of affairs in Pakistan.

They criticize the policies of downsizing and rightsizing of the government which,
according to the union leaders, have caused an unprecedented unemployment and
lawlessness in the country. The union leaders and workers are determined to resist the
privatization of Wapda's regional organizations.
Union secretary-general Khursheed Ahmed Khan has called upon all worker unions to
join hands with Wapda workers in their just struggle against the anti-labour bureaucracy.
He warns they will continue their struggle against the exploitation of workers by
multinational companies and their Pakistani supporters. (19)

8.2 Demand for inquiry commission

Khurshid Ahmed has also emphasized the need for constitution of a commission for
holding an inquiry into the privatization process and avoiding sell-offs of utilities in
future. he claims that neither the public nor workers had benefited from privatization of
utility services. The deposit of banks had increased from Rs. 5 billion to Rs. 95 billion
but the profit rate has not been raised proportionately. Banking hours had been extended
from 9 am to 5 pm, bankers were forced to work till 9 pm without payment of overtime.

He says restrictions are imposed on trade unions to facilitate privatization. “Golden

handshake is also used to counter resistance of workers against such a move and the
quality of services of privatized units has not improved. Only the cost of services and
products and number of highly-paid officers has increased. As many as 30,000 PTCL
employees have lost their jobs after privatization.

Now, the country is experiencing the worst power crisis in its history because the World
Bank did not allow Wapda to build even a single new power-house after 1999. The
utilities’ sell-offs had created serious problems for the people in the form of prolonged
load shedding in Karachi and health and education costs going out of reach of the
common run of people. It is for this reason that utility services are not privatized in
democratic countries. The US government could not sell an airport to a French company
because people opposed handing it over to a foreign company.

Researcher Khaliq Shah said Benazir Bhutto started privatization process and identified
26 units for sell-off through sale of share in the stock market, but could not do so due to
dissolution of her government. The next Mian Nawaz Sharif identified 125 units for
privatization, but succeeded in privatizing 60 at a cost of Rs. 120 billion. He said poor
performance and losses were used as a justification for privatization of public sector
units. An Asian Development Bank report of 1998, however, said there was only a slight
improvement in working of only 22 per cent privatized units. There was no significant
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 $23
billion in 1991 to $42 billion till date and Rs. 395 billion raised as a result of privatization
of 160 units were unaccounted for. Poverty and unemployment had also increased.

PTCL Workers Action Committee leaders Malik Maqbool Hussain and Sabir Butt said
the workers had suffered the most due to the company’s privatisation. As many as 30,000
employees had been forced to leave their jobs and the remaining were being paid the
salaries of 2001 despite the fact that the government had revised the pay scales of the
employees twice. He regretted that other trade unions had not stood by the PTCL
employees 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 and
unsatisfactory. 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 to
power fluctuations and very poor quality of services.

As far as the rationale for the privatization of the power sector is concerned, it is
important to note that the main justification given for its privatization was to attract the
foreign investors. The efficiency gains did not constitute any significant or primary
rationale 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 expensive
and costly. There is a huge risk involved in their maintenance and security, and their
handing over to the private sector is likely to increase that risk. Though the government
had decided to privatize the sector in early 1990s, it took years to actually start
privatizing the sector. The efforts for privatization could only materialize in 1996, when
the government decided to privatize Kot Addu and Jamshoro thermal power plants and
the Faisalabad Area Electricity Board. In addition, the government decided to privatize
KESC as well.

Initially, only 26 per cent of the shares in the electricity generating plant at Kot Addu
were offered for sale, which was followed by the sale of another 10 per cent stakes. It
resulted in the creation of the Kot Addu Power Company (KAPCO). KAPCO had very
little government interference, and its efficiency increased after privatization. However,
due to a number of reasons, including labour unrest, the Wapda took back the shares of
Kot Addu power station, which had been sold in 1996 to the National Power of the
United Kingdom.
Critics of the privatization of the power sector in the country argue that in the beginning
only one distribution company should have been privatized so that its performance could
be monitored after privatization. After learning lessons from this experience, the
privatization model should have been modified and then replicated to avoid problems
arising out of the first instance. Moreover, instead of privatizing the assets of the
distribution companies, their management and operation could be leased out on contract
basis for a specific period of time. Whereas the state should have retained the ownership
of the companies, and thus be responsible for security. The contract could be extended on
expiry, but subject to good performance by the private companies. (21)
According to the Consumer Rights Commission of Pakistan, the power sector in Pakistan
has only partially been privatized, and thus, the proclaimed benefits of privatization like
improved quality of services and increased efficiency have not been yet passed on to the
consumers. As a result, the problems of the consumers remain the same. Their concerns
range from poor quality service and lack of universal service provision to the issues
related to accountability, transparency of privatization process, regulation and public
participation.

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 the
sector, the electricity bills would be reduced. However, on analyzing the power sector
privatization, one can easily conclude that this has not in fact taken place. It is generally
argued that privatization in its true essence should have not only resulted in improved
quality of services but also in reduction of prices. On the contrary, the fact is that
consumers of the power services are complaining of excessive billing. The prices of
electricity have gone much higher, and are likely to go up further. It has been asserted
that expecting the electricity prices to fall after privatization seems to be ‘unrealistic’.
WAPDA and KESC continuously kept demanding upward tariff revision from the
NEPRA 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 of
the state irrespective of their locality, economic status, ethnic identity, etc. The supply of
electricity must be viewed as a state responsibility, rather than from a purely commercial
viewpoint. Moreover, the electricity must remain affordable for a common man even
after privatization. Getting un-interrupted supply of electricity constitutes a basic right for
every citizen. Given the fact that in Pakistan, the number of power consumers is far less
than developed countries, there is a need of rapid electrification of the remote and rural
areas. It is also argued that in case of electricity services, the state is also responsible for
the security and maintenance of the distribution systems.

9.3 Regulation
It is asserted that the deregulation and privatization process should not be made hostage
to short-term economic considerations, rather it should take into account the questions of
universal access to basic services, equity, free competition, regulation to forestall any
development towards creation of monopolies and cartels and vulnerability of
marginalized consumers. Experience of deregulation and privatization until now shows
that at least in some situations it has resulted in the emergence of cartels. Furthermore, as
a result of corporatization of some public utilities, investment in terms of expanding
facilities in the rural areas has decreased, while the emphasis has shifted towards
providing value-added services in the urban areas.

The situation becomes further complex in the case of public services which are
considered natural monopolies. The importance of autonomous regulatory frameworks in
the post privatization phase is recognized world over. In this context, Pakistan too has set
up regulatory bodies for electric power and telecommunications. These authorities are
supposed 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-term
considerations, with significant implications for the credibility of the regulators;
2. Regulators in some situations lack capacity to independently evaluate the performance
of utilities, especially in the process of determining tariff.
3. Until now, it is very common in Pakistan to post people from the public sector utilities
in the regulatory bodies. Often, they are posted on deputation and thus have an interest to
go back to their parent department. This practice undermines their capacity to play an
impartial role vis-à-vis the public sector monopolies.
4. Regulatory frameworks do not make it mandatory for the regulators to hold public
hearings and ensure consumer participation. As a result, at times, the regulators under
influence from government or affluent service providers, decide not to hold public
hearings.
5. Even when public hearings are organized, little emphasis is given to ensure quality of
participation by ensuring timely access to necessary documents, reports and data. At
times, 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 and
Development Initiatives-Pakistan (CPDI-Pak) points out that this restructuring hurts
certain interests and benefits others and, therefore, it is bound to have implications in
terms of either creating new conflicts or impacting, positively or negatively, existing
conflicts.

10.1 Control on national economy

Privatization process is opposed in certain situations on the grounds that it opens up the
door for the foreign companies to buy national assets and gradually establish control on
the national economy. It is for this reason that, in many developing countries,
privatization is referred to as “denationalization”, which is understood as a transfer of
control of national assets to foreign investors or managers. Opposition to privatization
comes from a range of actors including national enterprises, who are often competitors of
foreign companies, as well as by political groups and labour unions. Ownership of
national assets by foreign companies is seen as a threat to national independence and
sovereignty. Many blame the “giant corporations” which are understood as staging a
“new-style global coup d'état” and against whose power, “the state is losing more and
more of its prerogatives”.

10.2 Regional inequalities

Privatization processes may benefit certain regions more than others, and hence may lead
to intensification of inequalities across regions. This happens especially when
government fails to appropriately design the privatization model and, at the same time, is
not willing or able to intervene by making public sector investments, directly or in
partnership with the private sector, to ensure uninterrupted supply of basic services or to
address problems of increasing inequalities across regions or classes. Such inequalities
across regions can potentially be very damaging for the political integrity of a diverse
country. Existing evidence suggests that issues around access and equity can potentially
cause socio-political conflicts at various levels. Such conflicts may have significant
linkages with class, ethnic or religious identities of the people.

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

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

WAPDA union leaders also apprehend that privatization of distribution companies would
result in further escalation of electricity rates and scrapping of the rural electrification
programmes as the private power distributors would be unwilling to serve new consumers
in remote villages. Before the WAPDA took over, they said, the Rawalpindi Electric
Power Supply Company and the Multan Electric Power Supply Company, used to refuse
requests for connections in rural areas because they did not expect a large electricity
consumption by villagers.
The Wapda had kept down the increase in power rates despite purchasing power from the
private companies by generating its own thermal and hydel power at lower rates. It is
supplying power to 10,366,000 domestic and 182,000 agricultural consumers at rates
which were lower than its own costs.

Privatization of distribution companies like the Faisalabad Electricity Supply Company

will affect the Wapda’s capacity to subsidize electricity rates for domestic and
agricultural consumers. They say the consumers cand not afford a further escalation in
rates 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. the
people, the government before taking up any such activity or making laws or
promulgating ordinances, should seek public opinion. Without the same it could not be
considered to be in public interest and welfare. The issue should be discussed in the
assemblies through public representatives as required under Article 18 of the
Constitution.

10.3 Division of royalties among federating units

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

The existing literature on privatization, as summed up above, clearly misses out the
distribution impacts of privatization or deregulation across regional and ethnic groups.
Whatever discussion about distribution aspects exists is about various economic
categories of consumers defined on the basis of their income levels. This is a crucial
shortcoming from the perspective of many developing countries where markets are
under-developed and where diverse ethnic and regional groups have traditionally been at
loggerheads for control of resources and power. In many such contexts, the ethnic and
regional 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 in
Balochistan over the natural resources. It is considered important for nation building,
promoting national solidarity and addressing the concerns related to discrimination and
exclusion, which could easily mobilize people around ethnic and regional conflicts.

The point remains that the predominant role that the public sector in many of developing
countries 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 the
public sector grew largely for consumer protection and, arguably, in response to the
challenge of leftist movements---resulting in the emergence of the welfare state. The real
challenge for many developing countries was to secure their territorial integrity by
reducing the possibilities of secessionist ethnic or regional movements through “nation-
building” initiatives.
With privatization and the restructuring of economy, the entire political system needs to
re-adjust. The challenge is if the privatization of public sector entities results in
weakening of elite alliances and triggers a process of resentment in various regions and
ethnic 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 initiatives
are so successful that a substantial support-base of beneficiaries is established and
thereby 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 the
decision making government level and then through induction of professional
management as a second pre-requisite. There are several key elements involved in
pursuing democratic alternatives:

Democratic support

1- Workers union can muster powerful economic, strategic, and political arguments in
favor of public provision. For instance, despite claims by privateers that they can deliver
services more cheaply, thereby saving taxpayer money, in fact public-sector provision is
always less expensive in the long run. Making this argument requires looking beyond
immediate savings to the broader socio-economic dislocations caused by the inevitable
job losses that accompany privatization and price hikes that invariably affect low-income
populations.

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 as
prepared 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 inherently

corrupt and inefficient. One need only review the record of privatizations, including
many mentioned above, to discredit this claim. Anti-privatization campaigns should be
armed with information on companies’ corrupt practices as well as their actual rather than
purported 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 social
policy 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 the
need 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
can and should insist that private proposals be evaluated against public-sector options
such as these.

6- In the event that a privatization does occur, workers and their supporters can maximize
democratic accountability through framework agreements which lay down procedures
that have to be followed before privatizations can take place; and through a strong, public
regulatory system.

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

8- At all stages, decision makers need to keep their minds open to alternatives, such as
organizing redeployments and retraining schemes for workers to adapt to the different
new 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 fact
that the new work organization requires fewer workers, they should be limited.
Maintaining a workforce intact engenders trust, and with it cooperation and loyalty. Both
are important at any time in an enterprise, but become essential to introduce change
successfully and boost performance.

10- Gradual reductions help attenuate the traumatic effect on the enterprise, and also
afford 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 other
compensations. Generous compensations render the process less traumatic for those
leaving the company and for their families, and at the same time smooth the process of
transformation.

Remunerations and other working conditions

12- It seems that, as in the case of employment, pay levels should be discussed before the
launching 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 and
restructuring. They may help compensate the employees retained for the loss of a
protected status, facilitate achievement of greater productivity, which may entail more
strenuous working conditions such as the longer working hours and pave the way to a
more flexible, multifunctional workforce.
14- In remuneration matters too, transparency is an essential element of success. Any
change of levels, scales and components of pay needs to be discussed between
management and labour, and should be understood by all.

Training

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

16- To ensure employability, and thus be credible, training must be appropriate. It should
provide skills in high demand, and thus genuine potential for redeployment (within the
same 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 important
instruments to mitigate the effects of the changes caused by a company's privatization
and restructuring on its employees. They typically contain provisions for handling
employment reductions and on the employment and working conditions of employees
who will transfer to the new company.

18- International rules may be effective in limiting employment cuts resulting from
privatization. The Acquired Rights Directive of the European Union, for instance,
requires that workers whose company is undergoing capital privatization or is being
contracted out, be automatically transferred to the new structure. Similar protections in
that text span working conditions and industrial relation rights.

19- Agreements and formal undertakings by governments also help considerably in

smoothening the process. In the absence of clear agreements, workers often strive to stay
with the old company, for lack of guarantees about employment and working conditions
in the new company. And trade unions, reflecting those apprehensions, typically oppose
the 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 rapidly
sketched as last-minute, remedial action.

21- Their credibility also requires the active involvement of trade unions in their
preparation, rather than being the fruit of unilateral decisions of governments or the new
employing company.
22- Their reliability is strengthened if they are the result of peaceful negotiations rather
than open confrontation.

23- Agreements' effectiveness hinges on their long-term sustainability. So far, measures

stipulated 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 the
requirements they set and the needs of the new structure, contractor or owner are kept to
a minimum.

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

25- Special consideration should be given in agreements to women employees and more
vulnerable 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 because
it produces useful, tangible results for labour, society, and enterprises themselves.

27- In the absence of negotiation, and even mere consultation, transformations have met
strong opposition. The process needs to be discussed within the enterprise, to explain the
situation, 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 at
more macro-economic levels, to minimize employment and social costs, improve the
quality of services, and increase company’s competitiveness.

29- Fundamental to unblocking tense situations between public utility employees

operating in companies undergoing privatization and restructuring and the other parties
involved in those processes is recognizing and addressing some basic employment and
income concerns.

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

31- The dialogue with trade unions and other stakeholders should start at the very first
stages of privatization and restructuring processes. Their input should be sought to
analyze the situation, identify the problems, and explore the costs and benefits of the
various options available. The earlier stakeholders come into the picture, the wider the
array of possibilities concerning options and paths to implement them, the smoother the
process, and the stronger the solutions. Early-stage dialogue is severely lacking
nowadays.

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 the
development, 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 from
that 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 a
participatory approach.
References

1- The News, Karachi, March 07, 2008

2- DAWN, Islamabad, May 09, 2008
3- A. Salman Humayun and Tanvir Anjum, PRIVATISATION OF PUBLIC
UTILITIES: A CONSUMER PERSPECTIVE, Published by Consumer Rights
Commission of Pakistan, P.O. Box 1379, Islamabad, Pakistan, E-mail:
crcp@comsats.net.pk, Web Site: http://crcp.sdnpk.org
4- Ibid
5- Briefing Paper prepared by Violeta P. Corral, Public Services International
Research Unit (PSIRU-Asia), June 2005
6- Ibid
7- 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 Private
Limited. http://www.adb.org/Documents/Speeches/2003/ms2003054.asp
8- Editorial, DAWN, Karachi, April 7, 2008
9- Editorial, DAWN, Karachi, March 24, 2008
10- DAWN, Karachi, May 29, 2006
11- DAWN, Lahore, April 7, 2008
12- Dawn, Karachi, March 17, 2003
13- Engr. S.Tanzeem Hussain Naqvi, Haste in privatization of public utilities,
DAWN, Karachi, December 25, 2004
14- .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. de
Luca
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’
1999/1
18- Press conference addressed by WAPDA union leaders, DAWN, May 8, 2002
19- Interviews with president and secretary general of WAPDA union conducted by
Mazhar Arif
20- Khurshid Ahmad address at a seminar on “Privatization and Role of Trade Union
Movement” organized by Labour Education Foundation at the Press Club Lahore
on April 30, 2008, Dawn Report May 1, 2008
21- A. Salman Humayun and Tanvir Anjum, PRIVATISATION OF PUBLIC
UTILITIES: A CONSUMER PERSPECTIVE, Published by Consumer Rights
Commission of Pakistan, P.O. Box 1379, Islamabad, Pakistan, E-mail:
crcp@comsats.net.pk, Web Site: http://crcp.sdnpk.org
22- Ibid
23- Mukhtar Ahmad Ali, Privatisation of Public Utilities: How is it Generating and
Impacting Conflicts in Pakistan? Centre for Peace and Development
Initiatives, Pakistan (CPDI-Pakistan), December 2008
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