Chairing a meeting on energy reforms a few days ago, prime minister Imran Khan expressed his grave concern over the woefully negative impact of the deals the past agreements made with Independent Power Producers (IPPs). Those deals resulted in expensive power and circular debt. The prime minister cautioned that the energy sector in the country has been facing a severe crisis.
The prime minister is absolutely right because his concerns have started to unfold as legitimate. The electricity tariffs have once again been hiked while circular debt continues to grow at an average rate of about Rs1.5bn per day (Rs45bn per month) in 2019-20 and by August this year reached to almost Rs 2.24 trillion with the total payables of the power sector presumably at around Rs 2.28 trillion by last month.
The industry is once again up in arms on the issue of tariff increase. The value-added textile industry has rejected the frequent increases in prices of gas and electricity, stating that the hike in electricity rates to US nine (9) cents per kilowatt-hour (kWh) for the export industry is surprising and not sustainable for exports. Similar concerns have been voiced by other business chambers of the country.
Electricity tariff hike and circular debt constitute two sour points, marring the government-International Monetary Fund (IMF) relationship. Much of the policy on these two points is dictated by IMF on account of its concerns on the security of its lending to the country. The phenomenon of tariff increase and circular debt is a grave issue for over a decade. The PML-N government, following its victory in the 2013 general elections, committed that it would wipe out circular debt in the first year of its governance. The actions taken by the then government, if any, were superfluous; those, in fact, were some acts of financial swapping.
In 2018, the PTI government inherited the power sector in much worse condition than what PML-N government did in 2013.
PTI government attempted to confront the issues more aggressively by putting up a fleet of ministers and professionals from the private sector. At the end of its two years of governance the power sector is still in shambles.
During the ongoing PTI rule, the power ministry has witnessed a very large number of transfers and postings of its officials. The ministry appears clueless to move the nation out of these crises. Unfortunately, however, the attempts made in the last two years to set things right in the power sector were ad hoc and superfluous. No serious attempts were made to get to the bottom of the issues.
The issues of power tariff and circular debt are interlinked; both are more of governance issues than of financial nature.
The years of mis-governance in the entire power sector supply chain have firmly embedded into the system a culture of incompetence, nepotism, corruption and influence of politics and vested interests. This culture is now a way of business in the power sector which defeats all reforms and change for better. Unless this culture is dismantled and replaced with good governance, no improvement in power sector is expected.
This task is not an easy one; it requires high commitment, radical actions and a 'super' human team for setting things right. There has to be a drastic management and human resource change at all levels, starting from a shop floor to a utility company board. There is also a need for auditing and plugging the gaps in the system and entire supply chain, restoring the role of the regulators.
The government has a choice to decide one of the two available options:
1) Get to the bottom of the tariffs and circular debt hikes issues and set things right.
2) Prepare for the severe consequences arising out of tariffs and circular debt hikes.
(The writer is former President, Overseas Investors Chambers of Commerce and industry)
Copyright Business Recorder, 2020
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
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