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.
Aigner, D. , C.A. Knox Lovell and P. Schmidt (1997), ‘ Formation and Estimation of Stochastic Production Function Models ’, Journal of Econometrics, 6: 21–37 .
2.
Banker, R.D. , A. Charnes and W.W. Cooper (1984), ‘ Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis ’, Management Science, 30 (9): 1078–92 .
3.
Baumol, W. (1995), ‘Modified Regulation of Telecommunications and the Public Interest Standard’, in M. Bishop , J. Kay , and C. Mayer (eds), The Regulatory Challenge, pp. 254–82. Oxford: Oxford University Press.
4.
Berg, S.V. , J. Tschirhart (1998), Natural Monopoly Regulation: Principles and Practice (Cambridge Surveys of Economic Literature). Cambridge: Cambridge University Press .
5.
Coelli, T. (1996a), ‘A Guide to FRONTIER Version 4.1: A Computer Program for Stochastic Frontier Production and Cost Function Estimation’. CEPA Working Paper 96/07.
6.
Coelli, T. (1996b), ‘A Guide to Deap Version 2.1: A Data Envelopment Analysis (Computer) Program’, CEPA Working Paper 96/08. University of New England: Australia .
7.
Fare, R. , S. Grosskopf , Lindgren and P. Roos (1989), ‘Productivity Development in Swedish Hospitals: A Malmquist Output Index Approach’. Discussion Paper 89–3. Department of Economics, Southern Illinios University: Carbondale .
8.
Fried, H.O. and C.A.K.K. Lovell (1994), Measurement of productive efficiency. New York: Oxford University Press .
9.
Hall, G.L. (2000), ‘ Electricity Pricing and Regulatory Practice in a Comparative Environment ’. Workshop Paper No. 2: Analysis of Alternative Ratemaking Methodologies, Manila. Prepared by Hagler Bailly Sevices, Inc. for Asian Development Bank and the Philippines Energy Regulatory Board and Department of Energy.
10.
Jamasb, T. (2002), ‘Reform and Regulation of the Electricity Sectors in Developing Countries’, Cambridge: Department of Applied Economics, University of Cambridge, 64 .
11.
Jamasb, T. and M. Pollitt (2001), Benchmarking and Regulation of Electricity Distribution and Transmission Utilities: Lessons from International Experience. Cambridge: Department of Applied Economics, Cambridge University .
12.
Littlechild, S. (1983), Regulation of British Telecommunication's Profitability. London: London Department of Industry .
13.
Shleifer, A. (1985), ‘ A Theory of Yardstick Competition ’, Rand Journal of Economics, 16: 319–27 .
14.
Vickers, J. and G. Yarrow (1998), Privatisation: An Economic Analysis. London and Cambridge, MA: MIT Press .
15.
Bari, F. (2001), ‘The Power Sector in Pakistan’. Available at www.energypublicbenefits.com/output_aug2002/pakistan/pakistan_Bari.pdf
16.
Battese, G.E. and T.J. Coelli (1995), ‘ A Model for Technical Inefficiency Effects in a Stochastic Frontier Production for Panel Data ’, Journal of Econometrics, 3: 325–32 .
17.
Chuadhary, M.A. and K. Abe (1999), ‘ Pakistan Economy: Past Trends, Current Situation and Future Prospects ’, Chiba University Economic Journal, 14.
18.
Coelli, T. (1993), ‘Finite Sample Properties of Stochastic Frontier estimators and Associated test Statistics’. Working Paper in Econometrics and Applied Statistics No.70, Department of Econometrics, University of New England, Armindale .
19.
Coelli, T. , D. Prasada Rao and G. Battese (1998), An Introduction to Efficiency and Productivity Analysis. Boston: Kluwer Academic Publishers .
20.
Coelli, T. , S. Perelman and E. Romano (1999), ‘ Accounting for Environmental Influences in Stochastic Frontier Models: With Application to International Airlines ’, Journal of Productivity Analysis, 11: 251–73 .
21.
Domah, P. (2002), ‘The Economics of Reform of the Electricity Supply Industry: The Case of Small Islands’, Working Paper, University of Cambridge, UK .
22.
Domah, P. and M.G. Pollitt (2001), ‘ The Restructuring and Privatization of Electricity Distribution and Supply Business in England and Wales: A Social and Cost Benefit Analysis ’, Fiscal Studies, 22 (1): 107–46 .
23.
Estache, A. , M. Rossi and C. Ruzzier (2002), ‘ The Case for International Coordination of Electricity Regulation: Evidence from the Measurement of Efficiency in South America ’, Journal of Regulatory Economics, 25 (3): 271–95 .
24.
Estache, A. , M. Gonzalez and L. Truillo (2004), ‘ Sources of Efficiency Gains in Port Reform: A DEA Decomposition of Malmquist TFP Index for Mexico ’. Utilities Policies, 12 (4): 221–30 .
25.
Erwin, W.D. and Nakamura Aliceo (1999), ‘ Benchmarking and Measurement of Best Practice Efficiency: An Electricity Generation Application ’, Canadian Journal of Economics, 32: 570–88 .
26.
Farrell, M.J. (1957), ‘ The Measurement of Productivity Efficiency ’, Journal of the Royal Statistical Society, 120 (3): 253–90 .
27.
Government of Pakistan (1994), ‘The Power Policy of 1994’, Private Power Independent Board, Islamabad, Pakistan .
28.
Government of Pakistan (2001–02), Economic Survey. Islamabad: Ministry of Finance, Economic Advisory Wing .
29.
Government of Pakistan (Various issues) Development Plans. Islamabad: Planning Commission .
30.
Galal, A. , L.P. Jones , P. Tandon and I. Vogelsang (1994), Welfare Consequence of Selling Public Enterprises: An Empirical Analysis. Oxford: Oxford University Press .
Kinnunen, K. (2004), ‘ Pricing of Electricity Distribution: An Empirical Efficiency Study in Finland, Norway and Sweden ’, Utilities Policy, 13 (1): 15–25 .
33.
Kemal, A.R. (2001), ‘Privatization in Pakistan’, Available at www.ilo.org/public/english/employment/strat/download/ep56.pdf ILO
34.
Khan, D.A.H. (2001), ‘Is Privatization in Pakistan Purposeful?’ Available at www.pide.org.pk/pdf/psde%2018AGM/Is%20Privitization%20in%20Pskitan%20Purposeful.pdf
35.
Khumbakar, S.C. , S. Ghosh and J. Mcgukin (1991), ‘ A Generalized Production Frontier Approach for Estimating Determinants in US Dairy Farms ’, Journal of Business and Economic Statistics, 9: 279–86 .
36.
Kompass, T. (1996), ‘Catch, Efficiency and Management: A Stochastic Production Function Analysis of the Australian Northern Prawn Fishery’, Canberra: Australian Bureau of Agricultural and Resource Economics and Australian National University , 30.
37.
Kompass (2002), ‘Market Reform, Productivity and Efficiency in Vietnamese Rice Production’, Working Paper, National Center for Development Studies, Asia Pacific School of Economics and Management, Australian National University .
38.
Kopp, R.J. and V.K. Smith (1980), ‘ Frontier Production Function Estimates for Steam Electric Generation: A Comparative Analysis ’, Southern Economic Journal, 46: 1049–1059 .
39.
Lassila, J.V.S. and J. Partanen (2002), ‘ Analysis of the Benchmarking Results of the Electricity Distribution Companies in Finland ’, IEEE Postgraduate Conference on Electric Power Systems, Budapest.
40.
Lovell, C.A.K. and P. Schmidt (1980), ‘ Estimating Stochastic Production and Cost Frontier When Technical and Allocative Inefficiency Are Correlated ’, Journal of Econometrics, 13: 83–100 .
41.
Mayer, P.C. (2000), ‘ Reliability Economics of Scale for Tropical Island Electric Power ’, Energy Economics, 22: 319–30 .
42.
Meibodi, E.A. (1998), ‘Efficiency Consideration in the Electricity Supply Industry: The Case of Iran’, PhD Thesis, University of Surrey .
43.
Murillo-Zamorano . Luis R. and Juan Vega-Cervera (2000), ‘The Use of Parametric and Non Parametric Frontier Methods to Measure the Productive Efficiency in the Industrial Sector. A Comparative Study’, Discussion Paper, Department of Economics and Related Studies, University of York .
44.
Necmiddin, Bagdadioglu , C. M. Waddams Price and Thomas G. Weyman-Jones (1996), ‘ Efficiency and Ownership in Electricity Distribution: A Non-Parametric Model of the Turkish Experience ’, Energy Economics, 18: 1–23 .
45.
Rossi, M. (2002), ‘Production Frontier Analysis: Electricity Distribution Sector in South America’, unpublished thesis, University of Oxford.
46.
Rossi, M. and C. Ruzzier (2000), ‘ On the Regulatory Application of Efficiency Measures ’, Utilities Policy, 9: 81–92 .
47.
Seiford, L. and R. Thrall (1990), ‘ Recent Development in DEA: The Mathematical Programming Approach to Frontier Analysis ’, Journal of Econometrics, 46: 7–38 .
48.
Sharma, K.R. and P. Leung (1999), ‘ Technical Efficiency of the Longline Fishery in Hawaii: An Application of a Stochastic Production Frontier ’, Marine Resource Economics, 13: 259–74 .
WAPDA (2003), ‘Power System Statistics’, Planning Department, Power Wing, WAPDA. Lahore: Pakistan . 1–87.
53.
Whiteman, J.L. (1995), ‘ Benchmarking Developing Country Electricity Systems Using Data Envelopment Analysis ’, Asia-Pacific Economic Review, 1: 71–80 .
54.
Whiteman, J.L. (1997), ‘The Efficiency of Developed and Developing Country Electricity Supply Industries: International Comparison’, The Institute of Economics, Academica Sinicia .
55.
Whiteman, J.L. (1999), ‘ The Potential Benefit of Hilmer and Related Reforms: Electricity Supply ’, The Australian Economic Review, 32: 17–30 .
56.
Yunos, J. M. and D. Hawdon (1997), ‘ The Efficiency of the National Electricity Board in Malaysia: An Introductory Comparison Using DEA ’, Energy Economics, 19: 255–69 .
57.
Zhang, Y. and R. Bartels (1998), ‘ The Effect of Sample Size on the Mean of Efficiency in DEA with an Application to Electricity Distribution in Australia, Sweden and New Zealand ’, Journal of Productivity Analysis, 9: 187–204 .
