In my article on the subject of state subsidy for power sector carried by this newspaper a few days ago I referred to a figure of around 1 to 1.25 trillion as the volume per year. Thereafter, Tabish Gauhar, Special Assistant to the prime minister on power accepted the fact that there will be a continuous subsidy in the forthcoming period in an interview with this newspaper. This was followed by a headline in this newspaper that the amount of circular debt is around Rs. 2.4 trillion. Without commenting on the amount of subsidy, the fact is that this amount which is called circular debt represents a 'hole' in the system that will ultimately be filled by the state. It is simply state subsidy. The exact amount may vary because of some double addition and accumulation of interests etc. however it reflects that state subsidy for the power sector is one of the issues of our national economy that has not attained the priority it requires. The quantum of circular debt is taken as a measure of success or otherwise of a particular government. This is totally a wrong metric and not a subject for prime time discussion on television for point scoring.
In a television interview with PML-N leader and former Sindh governor Muhammad Zubair, when he used to host programmes on 'Business Plus' channel almost a decade ago, I stated that there is no shortage of electricity in Pakistan. There is shortage of funds to produce electricity. The more we produce the more we lose. In other words, we do not have enough funds to subsidize the ever-increasing demand. The position still remains the same. It has worsened despite the claim that electricity issue had been resolved by previous governments. Every unit produced adds a drain on the exchequer. As stated in my earlier articles, under the present circumstances and the state of Pakistan's economy, there is no justification for increasing tariffs. At the same time there is no possibility for reducing generation or consumption. The writ of the government is so weak that we cannot oblige retail markets to function during daylight hours. COVID has constrained them to do so but there is a push to extend the hours. Markets open at 12noon and close at 12midnight. This has become our culture since last five decades and we do not want to change it. In most developed countries almost all airports are closed before midnight and all High Streets are closed by 6pm.
In these circumstances the net result is more subsidies by the government. As stated earlier there is a definite need to reduce the amount of subsidy if it can be achieved by reducing different kinds of wastages like line losses, however, there is a definite need to identify that even after taking into account the 'normal' losses, there is a negative difference on overall basis and that has to be funded by the government. This is a reality that cannot be overlooked. In other words, there is no possibility of 'market based' electricity system for Pakistan in the near future. In my view there is nothing wrong in that. It is the responsibility of the state to provide utilities at an affordable price keeping in view the economic realities. As stated in my earlier article notwithstanding the circular debt of Rs 2.4 trillion even on a conservative basis there will be drain on Federal Government resources to the tune of Rs 1.5 trillion on this account on annual basis [depending on the price of input].
Circular debt arises only on account of the fact that amount of subsidy is not completely accounted for in the Federal Budget and the amount of subsidy is not timely paid to the discos that leads to liquity issues. This has been going on for over 30 years. This evasive attitude is nothing but an illusion to juggle the overall figure of deficit in the federal budget. It is advisable that Prime Minister Imran Khan should publicly state that such and such amount of subsidy will be given and name or identify the sectors and areas that will benefit from taxpayers' money. This disclosure is extremely important for the reason that on account of incorrect assertions, wrong notions are developed. Furthermore rent seekers create space for themselves. For example, distribution company of Faisalabad (FESCO), which is considered to be a well-managed entity, showed a profit for the year of Rs 6 billion whereas there is a subsidy by the government of Rs 58 billion. The question is, is there any profit? Is it not a confusing disclosure? I question the accountants of that and other Discos and the validity of the assertion that FESCO is a profitable unit that is 'up for sale'. As stated in my earlier article, in the present state of affairs where Discos are not effectively independent entities the question of privatization is nothing more than a get together in the power corridors of Islamabad.
The purpose of this comment is not to criticize the operation of a particular disco. The only intention is to identify that in the present scenario there is a need for 'Proper Accounting' for costs and revenues in the power sector on a national level. At the moment there is camouflage that has been intentionally created by the governments in power during the last 30 years that needs to be exposed.
This has been done to provide space to hide inefficiencies, create discrimination in distribution of subsidies and consolidate bureaucratic control over the power sector. In the present scenario where the main question is availability of subsidy the most sought-after persons are Secretary Finance and Secretary Power divisions.
In this situation it is reiterated that government should make it mandatory that financial accounts of all discos be published for public consumption like KE for the reason that there is an impression that one Disco is efficient in relation to others. Same is to be done for PPEPCO and CPPA. Moreover, NEPRA should be mandated to provide on monthly basis for the entire country the cost of electricity produced and the sale price on overall basis. In this manner people will know whether or not we are suffering from inefficiency or providing subsidy in line with a national economic compulsions. This disclosure will also push NEPRA in making prompt decisions for tariff. In short, keeping in view the amount of circular debt of Rs 2.4 trillion there is no room for complacency. These considerations provide an opportunity for the people to expend their energies on providing solutions instead of criticizing every government in almost the same tone.
Lastly as stated earlier, in the present set-up it is not possible for the federal government to bear the ever-increasing cost of subsidy in the power sector. In this situation, it is reiterated that the amount of subsidy on power be shared substantially by the Provincial Governments. Having served as the Finance Minister of Sindh for two months in April and May of 2013 I can vouch that Provincial Governments are not short of money. At that time almost at the end of the financial year I had almost 60 percent of Provincial PSDP unspent. State subsidy for the power sector is the need for the day; however, it is reiterated that the taxpayers' money should be spent in the manner which is transparent and equitable.
Copyright Business Recorder, 2020
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