ARTICLE: On a roll here - actually followed the plan and read, or at least tried to read the "Report on the Power Sector" (the Report), prepared by the Committee for Power Sector Audit, Circular Debt & Future Roadmap. Tragically, despite the fact that this report was just under 300 pages, could not get past the 100 page benchmark.
Let me explain the 100 Page benchmark. Many years ago, vying for the title of an avid reader, I picked up Leo Tolstoy's War and Peace - you cannot claim to be an avid reader unless you have conquered War and Peace, one of the proverbial 12 labours of a Hercules of book reading. I confess, I could not get past 100 pages - which gave birth to the 100 page benchmark.
Frankly, I wonder if someone wanting to read the Report purely for knowledge could not finish it, how many pages are read by those busy with running a Government which faces a record number of unprecedented challenges.
Notwithstanding, an epiphany: if the objective is to ensure that the private sector, domestic and foreign, doesn't ever invest in the industrialization of Pakistan, we are on the right track - we should follow the Reports on Sugar and Power with reports on cement, fertilizer, telecom, and automobile sectors. Definitely, the findings there will also be earth shattering!
For someone who believes that Foreign Direct Investment (FDI) is a Trojan horse, this strategy is something to cheer. On the other hand, whilst I support protectionist policies, and State Capitalism, I am cognizant that without domestic private investment the economy cannot achieve its full potential. Opposing free markets does not in any manner suggest that one is not aware of the power of the market place.
The primary takeaway for me after reading the report is - how did we end up with excess capacity? And that too expensive electricity produced from imported fuels? Whether or not the State can browbeat the entire private power sector (78 projects) into renegotiating tariffs - the domestic investors might even succumb to pressure, but the foreign investors will surely not - the bigger question is: have we now taken steps to ensure that future Governments are restrained from venturing into similar white elephants which, whilst providing political mileage and getting votes, are disastrous for the economy and the country?
Apparently not to my knowledge!
Decisions have consequences, and reversing decisions of the past is never easy, if not impossible - unless you own a time machine!
In this case, apparently, the decision making successively faltered at the very first step - our problem was cheap electricity, not electricity at any cost.
By hindsight, the entire investment in the power sector is more than likely to appear dubious, and not necessarily because something was rotten in the state of Denmark. The objective, electricity at all cost, might have been a catalyst to offer competitive tariffs to attract investment, back when the world economy was booming, until the Great Recession burst the bubble. In this context, the strategy of electricity at any cost was the flaw, not offering dollarized scandalous tariffs - the latter might just have been a fate accompli and all the consequences of economic decisions are never evident whence the decision is taken - at that time the feasibility appears extremely feasible and the dollar was nowhere near Rs 166.
For me the key recommendations in the Report are: no new power plants to be established for the next few years, plants in the pipeline should be delayed, contracts of plant reaching expiry date should not be renewed, incentivise industry to switch from captive power to grid electricity, and encourage Karachi Electric to utilise excess capacity from the NTDC grid instead of setting up their own power plants. Not sure whether or not all this is even doable, albeit the bigger problem is that these suggestion are not even in the limelight and are being ignored even by the media.
For my money, the strategy and way forward in respect of the Private Power Producers, especially those based on FDI, are completely dependent on the agreements in place - which, as I understand, were meticulously drafted back then to be iron clad in the interest of the investors. And let us not forget the OECD guidelines. Further, whether or not the Commission of Inquiry can proceed on this matter retrospectively remains to be seen. Whilst the very detailed analysis by the Committee has highlighted multiple issues, some prima facie of non-compliance with agreed terms, the eventual resolution could entail lengthy legal battles.
Take the matter of heat rates: if all the efficiency gains vested with the State, there would be none - something which would irk the economists at least, who for some unfathomable reason are obsessed with efficiency and innovation!
As regards the circular debt, I absolutely agree with the committee - if 20% of the units produced are lost in the system for whatever reasons, and never billed, and the Government does not pay its own electricity bills, circular debt is going to be with us for a very long time. Of course, we can always agree with our trusted friend, the IMF, and increase the tariff to cover all costs- which, however, may have serious political repercussions.
Undoubtedly, power is a troubled sector, and whilst the Report, commendably, has uncovered pertinent issues in a short time, the related solutions will not be easy to come by - and even if they do, it will be a bitter pill to swallow.
It remains to be seen how the Government will now resolve the power dilemma - because if we don't move quickly, we will remain fused!
(The writer is a chartered accountant based in Islamabad.
Email: [email protected]. The views expressed in this article are personal. The views are not necessarily those of the newspaper)
Copyright Business Recorder, 2020
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