Problem of Electricity Services Provisions Facing Sustainability

The electricity services provided by DABS, being state’s centralized natural monopoly, is getting unaffordable and unreliable. The existing state operated natural monopoly in Afghanistan – considering the existing high level of losses (according to USAID Document 2018), high average cost and high average operational cost – is a weak natural monopoly unlike to that of strong natural monopoly with high efficiency; lower losses, low marginal and average cost. This situation puts a strong question towards the sustainability of electricity provision and DABS as natural monopoly as whole.

Having said that the problem statement can be uttered as “Electricity Services in Natural Monopoly and Centralized Da Afghanistan Breshna Sherkat is turning Unaffordable and Unsustainable.”.
Figure 1: Cause and Effect model
In an ideal situation natural monopoly is known for efficiency as having very low average cost due to economies of scale, profitability that can be used for expansion, research and innovation and encouraged investments (Pettinger, 2019). However, in most of the cases under government managed monopolies particularly in developing countries where regulatory bodies are either not present or not sufficiently functional; monopolies rather have disadvantages i.

e. high inefficiency, diseconomies of scale, and high average marginal and total costs (Pettinger, 2019). The study of Kenyan Electricity Utility by Peter Gudo Ogira describes that the natural monopoly resulted in high cost of electricity to the people of Kenya and low coverage of electricity within the nation (Ogira, 2014). Similarly, in Pakistan the natural monopoly WAPDA was reformed as it caused severe financial crisis in the economy due to poor governance, rising fuel prices and rampant corruption, in 1992 (Khalid & Iftikhar-ul-Hussain, 2016).

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There are many studies and reports on monopolies in other economies; however, so far, no specific study was made on DABS as a natural monopoly in the electricity services provision. Da Afghanistan Breshna Sherkat (DABS), the only state-owned electricity corporation and a natural monopoly, is responsible for the electricity services (DABS – Statutes, Official Gazzate (OG 0945), 2008). It was corporatized from DABM to DABS in March 2008 with the intention of improving its efficiency and meeting the nation’s electricity demand requirements. It did have significant improvements though “reduced AT&C losses from 50%-80% to 30%-35%…” (USAID, 2018) and increased supply and “population coverage approximately 84.1%…” (World Bank) as of 2016, where only about 36% (DABS Commercial Directorate, 2019) being served by DABS. The percentage of population having access to grid electricity is very low besides 35% of ATC losses is very high compared to other Central Asian countries according to CAREC Study of Power Sector (Thakur, 2016).
Looking at the financial reports of 1392, 1393, 1394, 1395 and 1396 we can assert that DABS had AFA 1.7 billion, AFA 1.6, AFA 1.8, AFA (0.385) and AFA (1.634) of profit respectively; this includes donations and taxes (DABS, DABS Fin. Report, 2017) (Grant Thornton, 2018). Despite massive donations, the profit after tax and donation is showing a negative sloping trend. (Independent Joint Anticorruption Monitoring and Evaluation Committee (MEC), 2017).
The reliability of power is another important area being very poor as there are heavy load shedding and blackouts reaching up to 15 hours a day (Amin, 2015), in addition, people are also suffering from high electricity tariff and having everyday complaints. Heavy load-shedding and high electricity tariff have become a controversial issue and is debated often in the parliament, and as well as occasionally public demonstrations in the northern and southwestern region of Afghanistan occurs. Moreover, customers are also unsatisfied of both services and how they are charged (Customer, 2019); despite of cuts in prices by one of major electricity exporters from US$0.085 to US$0.05 . One of the main reasons of tariff being high; is high cost of electricity distributed due to inefficiency in terms of not having significant improvement in AT&C losses.
Given the above studies and performance data, it can be empirically affirmed that natural monopolies mostly in developing countries with weak or no regulation particularly under state-ownership and management will certainly have disadvantages and turn into a situation will lead the services expensive and unsustainable.
Such problem of electricity services provisions facing sustainability threats due to state-owned and managed natural monopoly not being regulated is not new. This situation has been observed for last several decades in countries. In order to counteract the negative consequences of weak state-owned natural monopolies; a wide range of reforms and regularization trend in the electricity sector are being implemented. Countries that are now developed mostly have completed these reforms and others have already started or just starting. (Foster, Witte, Banerjee, & Moreno, 2017)
Figure 2: Reform Trend in Developing countries and Establishment of Regulatory Bodies

Source: Charting the Diffusion of Power Sector Reforms across the Developing World Bank (Foster, Witte, Banerjee, & Moreno, 2017)\nDABS in order to meetup the electricity demand the company without having any competitor will have to expand in size meeting up overall operations national wide and requires investments worth of 10.193 billion in US dollar (Fistner Company, 2013). In such circumstances the state-owned monopoly needs billions of investments firstly and secondly being too big becomes difficult to manage and consequently inefficiency will rise to its peak; resulting in poor and unaffordable electricity services. Moreover, in case of high inefficiency the chances of company going insolvent, failing to pay its debts, gets high and resulting in failure as concluding the DABS previous five years audited financial reports.