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Case for Private Monopoly
Most of the time monopoly is bad. At least that is what conventional economic wisdom says. Hence it has been a tradition to bring all natural monopolies under the state control. But going by the developments in Nepal, it seems monopolies are better in private hands than in the government.
The case in point is the Nepal Electricity Authority (NEA) and the 17-hours a week load shedding effected recently by it.
A producer, whether a monopolist or otherwise, always strives to increase production and sales so that the competitor, present or future, would be avoided. But NEA is an exception. For the last four years, it has not added a single Mega Watt to its power generation capacity. A producer encourages its customers to increase consumption of its product so as to increase the sales revenue. But NEA is calling upon its customers to consume less electricity. A producer tries to minimise the cost of production and efficiency in product distribution and revenue collection so that the profit margin can improve. But NEA opts for increasing the cost of production and decreasing efficiency. It is not only generating electricity using costly petroleum fuel rather than from free-flowing water, it selects a more expensive project to generate hydropower (Kabeli) while much cheaper alternatives (Tamakoshi) are available (see article in this issue Water Plan Sans Energy Plan). Moreover, it does nothing to reduce the losses in the distribution of its product (the leakages increased to 25 per cent this year from 23 per cent a year ago) and the losses in the collection of the payment for the quantity of the product sold.
Private monopoly would work a lot better than NEA for the consumer and the economy. While the greed to make more money would drive the private monopoly to expand its customer base (and thus the expansion of electricity coverage) and production capacity, it would also try to minimise the costs by opting for more efficiency. But at the same time, it would not be able charge its consumer exorbitant prices for fear of government intervention and public wrath. It would not be able to maintain a high price of the product and exploit the consumer too because that would encourage a competitor to enter the same business. Rather, a private monopoly would go on expanding and deriving higher economies of scale. Moreover, there is always a threat of some distant substitutes being used. NEA has no such threat as the business or distant substitute (petroleum) is controlled by the same government.
Thus it seems it is time for Nepal to go in for privatisation of NEA at least even if it results in a private monopoly.
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