. .

With good regulatory frameworks investment can be ensured without sovereign guarantees

Feb 19 - 25, 2001

An intelligent person learns from others' mistakes and nationals with futuristic outlook redefine their policies with the changing environment. Privatization Commission of Pakistan has so far made outright sale and/or the GoP stake in more than 100 entities. That is the first hand experience. However, Pakistan was not the first country to undertake privatization. Many developed countries and even those where the conditions were worse than Pakistan have credible track record. Therefore, the efforts should not to reinvent the wheel and to learn from the mistakes of others, to be more accurate.

However, it goes without saying that the GoP initiated the process of liberalization, deregulation and privatization not at its own but more under the pressure of lenders. Since there was not a clear cut strategy various adhoc measures were made. The worst example of this was allowing the establishment of power plants in the private sector. While the largest losses were in T&D, both WAPDA and KESC were made to purchase electricity from private power producers. According to an analyst, "The GoP put the cart before the horse and the result is persistent increase in electricity tariff. While consumers in other countries benefited from privatization, consumers in Pakistan are forced to pay for the inefficiency of state-owned utilities. Therefore, we should learn from our own mistakes and develop the future strategy following a prudent approach."

Globally the countries which undertook privatization can be divided into four categories: 1) Industrialized, developing, middle-income and low-income countries. These best examples pertain to energy sectors which incidentally Pakistan is also doing. Industrialized countries managed their problem by liberalization of energy sector and succeeded in attracting large investments. Developing countries faced direct competition with developed countries and flows were sensitive to financial problems. Middle-income countries were able to attract private investment but better off consumers benefited most and little of the benefits reached the poor directly. In low-income markets opportunities were perceived little by private sector, per capita consumption remained either stagnated or declined and access to energy supply by the poor declined.

According to Tjaarda P. Storm van Leeuwen of the World Bank, there are some concrete examples relevant to Pakistan. He referred to two oil and gas privatization in Argentina and the Bolivia-Brazil pipeline. Argentina demonopolized and deregulated oil and gas sector in 1990, eliminated restrictions on imports, exports and pricing and privatization took place after restructuring. The result is improved service delivery, exports and Argentina is now a major player in international markets.

The Bolivia-Brazil pipeline is even more interesting story. Bolivia had the gas resources and Brazil had the demand. Neither government had the financial resources to develop the pipeline. Bolivia made legislative changes to enable development of resources. Downstream market reforms and market based pricing reforms in Brazil paved the way for the deal. The international lenders provided innovative financing.

According to Tjaarda, "Private investment is needed because of the GoP's inability to fund accelerated development of the sector. Therefore, it should have good regulatory framework (transparent and predictable). Pakistan also needs proper sequencing of reforms to address downstream problems first."