The payables and receivables of the power sector continue to rise at an alarming rate. It is reported that the receivables as per close of financial year ending 30 June 2015 stand at Rs 635 billion as against Rs 513 billion in the year ending 30th June 2014, which is a phenomenal over-all increase of nearly 20%. The break-up includes Rs 590 billion outstanding on account of state-managed power distribution companies (Discos) and Rs 44 billion on account of power supply by the government from the national grid to KE of Karachi which shot up from Rs 28 billion as per the same date last year.
Of the eight distribution companies, only two showed some improvement with MEPCO of Multan recording a reduction of 10% over last year, whereas Faisalabad showed a reduction of 1.3%. Surprisingly, IESCO of Islamabad, the capital of effluent elites and law makers, recorded an increase of 33% in payables - being the highest of all distribution companies.
All of this escalation in receivables brings the entire supply chain under the much known phenomenon of circular debt, although, since quite some time this terminology is not in much use of the government functionaries. The overall receivables of PSO escalated to Rs 252.4 billion this year from around Rs 225 billion last year. The cash flow of PSO is the most critical item in the supply chain. The petrol crisis last year, on account of due payment default, is still fresh in the memory of public.
Upon coming to power in May 2013, the government doled out Rs 480 billion as circular debt under the well propagated policy of cleaning up the mess and starting with a clean slate. But, even in the third year of governance, the menace of circular debt keeps on bouncing back and each time with greater intensity. The issue is not so simple as to be addressed by a financial treatment; it is profoundly complex and probably beyond the comprehension of the state financial managers.
Much of the state financials and structural reforms are the IMF-driven who appears to be moving well with the PML government. The IMF's main focus is on power sector reforms, revenue expansion, fiscal deficit management, making central bank autonomous and privatisation of public business oriented assets. Most important are the power sector reforms of which the three main components are (1) the management of receivables and circular debt (2) the rationalisation and optimisation of power tariffs and (3) the privatisation of public utility companies.
The recipe forwarded by the IMF is to increase power tariffs, implement reforms and good state governance in the power sector. Over the last two years, public has endured a number of power tariff hikes where the good guys paid their part and also for the bad guys, which is a vast majority, who do not pay. In the last month alone, the government introduced two surcharges of around Rs 2.50 per unit. The effect of the tariff hike has turned out to be the opposite as receivables sky-rocketed. Probably, the good guys also crossed the line to be with the bad guys being no longer able to honour their national obligation. A sad state of affairs indeed.
The missing element in all of this is the enforcement of good state governance in the power sector which is pathetically poor and going from bad to worse which is reflected in the phenomenal increase of receivables of the much feeble power sector. Instead of fixing these complex and professional management demanding issues, the government opted for an easier and passive path by putting a price tag on all items of in-competence and passing it on to the public to pay for it under the guise of power tariff increases such as - deficiency on account of power theft, technical loses, non-recovery of billed amount, equalisation surcharge, debt servicing, tariff rationalisation, the Neelum-Jhelum surcharge, fuel adjustment surcharge and similar. Nowhere in the world, are tariffs generated with built-in items to compensate in-competence. In Pakistan, a land where a vast majority lives below poverty lines, power tariffs are one of the highest in the world unbearable by the domestic consumers, industry, agriculture and similar.
The structural reforms and hard financial, economic and governance decisions are best implemented in the honeymoon period of the government which at best is the first two years in power. This is the time when public is looking upon the government with hope for a change and the government has more than half of the remaining time left to reap the benefits of the programs it implemented and to gain political mileage out of it. In third year and beyond the government tends to take more of populist decisions with the focus on the next elections.
The IMF programme will also be entering its last leg in the next two years or so. Not much in real terms, to turn around the economy of the country has been achieved. There have been some positive points scored, some waivers granted but structural reforms, privatisation process and similar programmes of long-term benefits lag behind the objectives of goals. Implementing and enforcing them in the next less than three years is much too challenging. An opportunity lost for the nation and the incumbent government.
(The writer is Chairman Avant Ventures and President OICCI and ABB Pakistan)
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