Energy sector reforms – II: low-hanging fruit rotting

Building on previous op-eds, we are aware of Pakistan’s energy sector challenges and measures requiring execution in our next 3,650 days journey: effective governance, limiting GOP role, protecting decisions of leadership team, limiting legal activism and legal process diligently and timely deciding commercial matters.

PIDE (Pakistan School of Development Economics) underscores the need for a 7-9% growth p.a. for a sustained period of three decades. We need to undertake deep-seated structural reforms in every area that directly or indirectly influences economic growth and functioning of state reformed to that of an enabler, encouraging FDI for export and not for local market that sends profits abroad.

The cold front is strong this time. We have external debt repayment of US$73bn in FY23-25, external borrowings at 40% of GDP and total domestic & external debt and liabilities at ~90% of GDP in FY22 requires us to stop living beyond our means or operating for the 1% by quickly correcting course, avoiding amnesty schemes and unfunded subsidies, taxing all adult citizens & businesses, increasing exports, building skilled resources including plugging “leaking borders”. There is no option!

Transformation requires consensus and working across partisan lines in Parliament with initiation of the following over the next 365 days to avoid us becoming another Sri Lanka, Ghana or Argentina; be able to cope with rising global recession risks and learning from success stories ,e.g., EU efforts to counter the gas shortage.

Energy sector reforms — I

Call it Charter of Economy (PIDE), Reforming to Survive (Cambridge Core), Economy - Wrong Policies, Poor Governance and Way Forward (Next Capital), Only Way Forward (Dr Atta ur Rehman), Energy/Economic Emergency measures. If anything, the economic mistakes of the past 75 years provide us enough data to quickly correct course towards a system of sustainability and change.

Energy management must be complemented with effective governance and meritocracy. On this front, our record has been wayward for various reasons.

Ad-hoc interventions, U-turns to appease the electoral base, delayed investments and ignoring reasonable suggestions from intellectual corners and technocrats need a full stop. As is, such culture will no longer survive in the 21st century.

Undoubtedly, collaborative exercises to bridge stakeholders are the need of the hour and the Parliament is the forum for informed debates, law-making work followed by firm actions.

The representative bloc can oversee policies that evolve and revisit current ones to the extent of ensuring a fair and competitive environment crucial for innovation and growth yet not interfere in commercial aspects, which is strictly an executive prerogative. Inability to govern effectively leads to mis-governance and opens doors for corruption. It is essential to close all loopholes through a process-improvement-approach and by adherence to rules. Difficult? Yes. But necessary!

Challenging the status quo and out-of-box approaches to solving our problems needs encouragement and should become the norm instead of the current overregulation culture, reflective in AGP’s (Auditor General of Pakistan’s) focus on noncompliance of procedures rather than finding ways of improving them. Weaponizing NAB (National Accountability Bureau) and FIA (Federal Investigation Agency) for “accountability politics” needs to end. It kills innovation and execution in the bureaucracy.

Our decision makers need protection and if mistakes are made, a fair review should be ensured without media trial, victimization, and political vindictiveness with the intent to learn and improve. These trials are a reputational cost to organizations and professionals.

The bottom line, however, is that the country suffers at the end of the day because such targeted trials shake confidence in the governance system of Pakistan and provide wrong signals to the international community. Scrutiny of NAB law by SC (Supreme Court) after Parliament’s approval for over past 7 months and 40 hearings despite NAO (National Accountability Ordinance) changes primarily based on PTI (Pakistan Tehreek-e-Insaf) government’s two ordinances and past Court orders (as per press reports), has lost the positivity, and strengthening of decision-maker that was envisaged.

Similarly, limitations and gaps within the defamation laws need to be addressed.

Contracts must be honoured. Decisions on commercial, contractual, and business petitions need to be based on the best practices of international law, not on court activism and require timely enforcement. The Reko Diq project alone would have cost us a hefty USD 10 billion. Recently, a similar situation has plagued the pharmaceutical industry and IPPs (independent power producers). Per latest news, K-Electric’s MEA-based investors have also written letters to GOP, complaining of mistreatment with their investment, which they made back in 2005 to support Pakistan. GSAs and PPAs need to be respected.

All the departments of GOP need to sustain their operations through income generation or should be merged or shut down for financial housekeeping. Likewise, people on the Board of Directors for government-owned companies should not be from bureaucracy or be political appointees but consist of experienced professionals. Increasing the minimum wage to PKR 50,000 per month will help improve the quality of life.

Following the above foundation-laying work, the next important measures require establishment of a competitive and deregulated environment. Policies need revision with core fundamentals focus, which includes charging energy at its cost, market-based pricing with subsidies provisioned in the budget and targeted subsidies paid directly into the recipient’s account; thus leaving no room for unfunded subsidies.

Moreover, protection of the consumer needs to come with a strong and financially independent Competition Commission of Pakistan and an Integrated Energy Regulator upon merger of OGRA (Oil and Gas Regulatory Authority), NEPRA (National Electric Power Regulator Authority) and NEECA (National Energy Efficiency and Conservation Authority). Their decisions need to be enforced without judicial and GOP interventions that continue to render them ineffective. Such authority vested with any other individual or institution is unwise and imprudent. The current price rationalization process, e.g., revision of gas, electricity and fuel rates is subject to frequent politicking while delays causing an increase in circular debt.

An integrated energy Regulator would need to build streamlined functions to monitor and encourage (not dampen) new opportunities with out-of-the-box solutions with a venture capital mindset and not determining who has the right to do business, e.g., LPG, LNG, RLNG, hydrogen, solar and wind as hybrid systems or segregating and taxing fuel types for appropriate engines based on combustion efficiency and environmental impact.

Simultaneously, railways and pipelines need transformation to become the preferred transportation mode for liquid fuels and we need to do away with the anti-competitive clause in white oil pipeline contract.

(To be continued)

Copyright Business Recorder, 2023