By Bizna Brand Analyst
Given what we saw on Monday, it’s high time for those in positions of power to call for electricity to be privatized.
One of the main and obvious reasons why electricity should be privatized because that would likely mean better rates for the general public. This would happen because there would be more companies in the business. When more companies enter a business there is more competition. More competition usually means lower prices. Private companies also have a profit incentive to cut costs and be more efficient. If you work for a government run industry, managers do not usually share in any profits. However, a private firm is interested in making profit and so it is more likely to cut costs and be efficient. So, privatization of electricity would be very beneficial!
The benefits of electricity deregulation will also include more cost-efficient production due to the market pressures of competing firms. A government monopoly should act in the public interest, and, therefore, should not exert market power in the determination of prices. Government monopolies, however, sometimes fail to use inputs efficiently, and without the yardstick provided by market competition, such monopolies could operate at a less than optimal level of productivity. That is why we had Monday’s incident for example. Kenya Power knows that no matter how long it takes to fix a problem, there is nothing consumers will do. They have nowhere else to turn to. This won’t be the case if there is private companies producing power.
Private suppliers are likely to produce more efficiently (unless they are a private monopoly), but also could exert market power, if there are only a few (or one) large suppliers. This has been the experience in many newly deregulated markets, like those in the US and Britain.
Dozens of first world governments have embarked on the pathway to electricity deregulation and privatization since the mid-1990s. It has become the accepted wisdom amongst governments and opinion leaders. It is referred to as ‘liberalization’ by economists since it also causes wide efficiency.
Privatization would also be beneficial because of a lack of political interference. It is argued governments make poor economic managers. They are motivated by political pressures rather than sound economic and business sense. For example Kenya Power may employ surplus workers which is inefficient. The government may be reluctant to get rid of the workers because of the negative publicity involved in job losses. Therefore, state owned enterprises often employ too many workers increasing inefficiency. If you look at it on another angle too, the government may be reluctant to invest in iproving the power grid for example just so it can save up on some money to use in other ventures such as increasing the salaries of a grieving group (doctors for example.)
Ultimately, Kenya’s power system needs upgrading. And with the government tightening it’s belts for the new age of austerity in the wake of the stimulus money spent to pull the economy out of recession, it’s becoming ore sensible to implement privatization