Privatization and Pakistan

 When I wrote about the six pillars of growth in my columns, people pointed out things I had missed, like privatizing state-owned businesses. I thought this was covered under the pillar of prudent fiscal and exchange policies because the majority of SOEs lose money. However, upon further reflection, I should have included privatization as a distinct growth-related pillar. This is it.

Before we talk about privatization, we need to figure out why the government, especially one that is as ineffective as ours, should even be involved in providing goods and services.

The majority of goods and services are adequately provided by markets, and as a result, most governments worldwide do not participate in their provision, either for reasons of equity or efficiency. Banks, airlines, and gas stations are all examples of this. Naturally, we continue to own National Bank, PIA, and PSO. Naturally, numerous governments participate in the provision of health and education for the purposes of equity. In these pages, I argued that because mismanagement in Pakistan is the norm rather than the exception, we would benefit more from the government subsidizing education or health care through insurance or vouchers rather than government-operated facilities.

For instance, the average monthly cost of a child attending a government school is Rs3,000, whereas the monthly cost of attending a low-cost private school with better educational outcomes is only Rs1,000.

The government doesn't really need to run petrol stations, oil wells, ports, airports, trains, etc.

However, there are some services that cannot be provided by the market because potential suppliers cannot exclude beneficiaries who do not pay (for example, beneficiaries of law and order, street lights, or improved air quality cannot be excluded if they do not pay for them). This is where governments are supposed to step in, either directly (for example, by providing police services, improving air quality through regulations and fines, etc.) or by contracting out services to vendors, such as the installation and maintenance of streetlights throughout the city.

When at all possible, it is best to have private vendors provide these services because governments are inefficient. But you can't outsource defense, police, or court services, among other things.

There are also utility services in which it is impossible for established big companies and new entrants to compete because adding new customers is extremely inexpensive for established companies.

For instance, Karachi Electric (KE) only needs to lay the wire from the nearest pole to the customer's residence to add a new customer, whereas a potential new competitor would need to lay the connection from the generation site to the customer's residence, which could be hundreds of miles away. As a result, new businesses are unable to compete, and large utilities become monopolies that can defraud customers. This is where the government needs to step in as a regulator and stop natural monopolies from charging customers too much for services like water, gas, and power. However, there is no need for these services to be provided by the government on its own.

During the 1970s, when communism was the fury, England sought after strategies that certain individuals later negatively alluded to as 'maker communism', that is communism to support those delivering labor and products (ie government workers) and not those consuming them (customary residents).

Producer socialism has taken over Pakistan today. Take, for instance, PIA. Additionally, there are four private airlines that operate here, each with more recent aircraft, comparable or superior service, and competitive fares.

The only difference is that private airlines make money and pay us taxes, whereas PIA loses billions of dollars annually. So PIA truly is running to help 10,000 or something like that (for the most part come up short on) representatives and not to assist 220 million Pakistanis.

Over Rs635 billion, or $2.8 billion, of PIA's cumulative losses and subsidies would be available in our current foreign exchange reserves to address many of our issues.

However, the issue is that whenever a government attempts to sell it, the opposition, the aviation ministry, and PIA's management and employees band together to prevent the sale. Resultantly, we lose sufficient cash to fabricate another Aga Khan College Medical clinic in an alternate city every year.

When compared to our electricity distribution companies, or Discos, PIA is an example of efficiency. Up to 17 percent of the bills paid by customers who are still receiving electricity are not collected by Our Discos. Additionally, they lose 17 percent of their electricity during distribution. Together, these numbers indicate that 34 percent of the electricity we generate is stolen or lost, increasing the price of our electricity for those who pay.

Due to their similarity, the two Sui businesses ought to be privatized as well, perhaps after being split into smaller businesses. The term "unaccounted for gas" (UFG) refers to the gas that these businesses do not actually know what happens to, such as whether it is stolen or leaked.

About a portion of the gas provided to Balochistan by SSGC is viewed as UFG. The two businesses suffer monthly losses totaling $200 million from UFG.

Distribution, bill collection, and UFG have hardly changed over the past few years. Privatization is the only solution for improving the situation. It stands to reason that things will get better if the owner's own money is at risk.

Naturally, we cannot limit ourselves to distribution companies alone. Generation companies and all other SOEs must also be privatized.

As we privatize these SOEs, it is essential to comprehend the global role regulators play and the fact that our regulators have been too weak and bureaucratic to adequately safeguard consumer interests due to laws, scope, and competence. We must improve and strengthen regulators because regulation is an essential government function.

The courts, police stations, and air traffic control are all run by our government. The government doesn't really need to run petrol stations, oil wells, ports, airports, trains, etc.

By making our economy less competitive, our SOEs in these fields lose hundreds of billions of dollars annually and incur even greater opportunity costs. By privatizing these SOEs we will diminish the impression of the public authority and increment charge incomes, work, and financial development.