Did the restructuring of the electricity generation sector increase social welfare in Pakistan?

Abstract

The power sector of Pakistan has undergone a substantial, yet protracted power sector reform program in 1992. Under this program, the government allowed participation of Independent Power Producers (IPPs), followed by the breakup of the Water and Power Development Authority (WAPDA) into various entities and the establishment of power sector regulatory authority, namely NEPRA in 1997. The power sector reforms in Pakistan have not been evaluated sufficiently to determine the actual costs and benefits incurred by different segments of the society, to correct the path of upcoming reforms. This study attempts to investigate the socio-economic impacts of restructuring of WAPDA's generation segment and private sector participation in the electricity generation sector of Pakistan by using a social cost-benefit analysis approach. The study has analyzed the impacts of reforms on government, private sector, and consumers (domestic, commercial, industrial and agriculture) of the power sector. The results have shown that the main benefit of private sector participation came from the timely expansion of generation capacity. However, environmental and electricity generation costs became exorbitant after power sector reforms. Consumers and government remained net losers, while IPPs were winners in the process of restructuring and privatization. This paper concludes that power generation sector reforms with private sector participation have impacted the overall social welfare adversely. It further concludes that had regulation been scrupulous with adequate supportive role of government with social obligations, consumers and government could have benefited from restructuring and privatization of the power sector generation sector in Pakistan.