Privatization is not for the faint of heart

Pakistan suffers frequent power outages that have a huge negative cost on businesses and general quality of life (story here: “Pakistan utility company fights to power chaotic port megacity“).  Here is why privatization seems like an obvious choice:

1. “Power cuts lasting 12 hours a day or more have devastated Pakistan’s economy. The loss of millions of jobs has fuelled unrest in a nuclear-armed nation already beset by a Taliban insurgency.”

2. “At the state-run Peshawar Electricity Supply Company, the majority of staff are illiterate, most new hires are relatives of existing staff and 37 percent of power generated was stolen.”

In 2008, the government decided to privatize the Karachi Electric Supply Company. The new owners fired about 1/3 of the workers, cut off customers who didn’t pay their electric bills, and cracked down on people illegally tapping into the electric system.

The response was quite telling.  First, in a sign of how dysfunctional things were before privatization, fired workers offered to work for free because of the profitability of holding the post.  Apparently they don’t know much about efficiency wages.  Management told them no way, so they “camped outside the building for months” and more than “200 actual employees (who were forced to cross picket lines every day) were injured.”
Second, the new boss came under fire (literally) at his home.  Legislators tried to have him arrested for “not attending sub-committee meetings in the capital.” What in the world can these sub-committee meetings be and how could non-attendance be a jail-able offense? They sound instead like a huge waste of time and bureaucratic idiocy.
Third, the wealthy were offended that they might have to start paying for electricity.  In my favorite quote of the story, one wealthy man said “he couldn’t possibly start paying because his colleagues would think he had no influence left.” How would anyone know that he started paying?
Fourth, cracking down on illegal connections is dangerous business.  The mafia controls these connections and utility staff that take them down are often attacked.  Apparently 10 workers were taken hostage because of this last month. And some areas are too dangerous for workers to even enter: “Some slums are held by the Taliban or gangs, and KESC staff can’t even enter. They are experimenting with licensing powerful local businessmen to collect bills and cut off non-payers.”
Despite all of this, privatization actually seems to be working:

Last year the company made its first profit in 17 years. Theft has fallen by 9 percent in four years. Half the city, including two industrial zones, does not have daily power cuts.”

Perhaps the experience in Karachi will convince other cities of the benefits of privatization, although clearly buying and operating these utilities isn’t for the faint of heart.

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