Benchmarking and Regulation for the Electricity Distribution Sector in Pakistan

Liberalization of public utilities, especially the electricity sector, in developing countries is a significant trend. In addition, some developing countries are in the process of developing a regulatory framework for the liberalized sector. These countries are facing the core issue of how to transform public utilities into market-oriented and regulated entities. Like other developing countries, Pakistan is no exception. This article measures the changes in and sources of efficiency between 1998 and 2003. We rely on DEA and Malmquist indices to calculate and decompose the changes in productivity of nine distribution companies in Pakistan between 1998 and 2003. The results suggest that on average there is 92 per cent efficiency in the sector and six firms are operating on the frontier. It also shows that total factor productivity in the distribution sector rose by an average 3 per cent a year in the 1998–2003 period. There is deterioration in efficiency change, pure efficiency change and scale efficiency change. All growth in total factor productivity is due to growth in technical change. The paper concludes by arguing that any electricity regulator could use these types of results to improve the efficiency and performance of the sector.