The IMF (International Monetary Fund) conditionalities imposed with the grant of their loan is invariably cited by the incumbent government as the reason for an unending increase in prices of petroleum products and electricity tariffs in the country. This is only true to the extent that the IMF dictates that the prices of the two be charged on real cost basis and passed on to consumers as per actual. It forbids subsidies which generate or add to circular debt as subsidies severely distort and compromise the country’s fiscal strength.
The IMF condition has merit and makes a greater business sense. Most of the stable and growing countries successfully follow this model. The truth and the main reason, which no government in Pakistan makes transparent, is the nation’s addiction to subsidies - which is largely driven by vote politics, corruption and incompetence in the entire supply chain of oil and utilities. From the lowest to the highest cadre engaged in the system, all are part and beneficiary of it. The IMF refuses to condone this fault line in our system and rightly so.
In these unusual and difficult times, the rising global oil and gas prices have affected many economies, including Pakistan’s, around the globe. Hikes in energy prices have contributed to Pakistan’s woes. Many growing economies have taken pre-emptive measures to minimize the impact of rising prices to insulate their industry and businesses from hike shocks. The electricity tariffs in India average out to US $ 0.075 per unit for households and US $ 0.103 per unit for businesses for the FY 2021-2022, which will continue for the FY 2022-2023 as well. The world average is US $ 0.103 for households and US $ 0.129 for businesses.
India since long has been working on a strategy to shift from fossil fuels to renewable energy. It built massive dams on various rivers, including the Indus, and expanded its indigenous wind power and solar industry to make it affordable. It earlier sourced its oil largely from Iran at discounted rates and following the Ukraine crisis it is also sourcing oil from Russia at a bigger discount. India bypassed the embargo imposed by the West on Iran and Russia and without attracting any consequences.
Pakistan did not do what India did to support its people and industry in providing them with affordable electricity.
Pakistan’s half-hearted strategy for shift to renewable energy did not gain ground. Only in recent years did it embark on mega hydro projects and is struggling with their timely completion, notably, projects under the CPEC (China Pakistan Economic Corridor). Pakistan’s wind and solar power induction into the grid was frustrated by vested interests and crass official incompetence. Pakistan continues to procure oil from the Middle East at market rates; and it never attempted to source readily available cheaper oil from Iran and now to some extent from Russia because of the embargoes imposed by the US. The result is apparent. Pakistan is selling one of the world’s most expensive electricity to its consumers. The ever-increasing electricity tariffs in Pakistan have crippled country’s industry.
President of FPCCI, Irfan Iqbal Sheikh, has decried the “ruthless” constant increase in electricity tariffs, saying these will shut down the industry across Pakistan as achieving a break-even in the current environment of cost of doing business has become impossible, leave alone being competitive in the export markets.
He maintained that the process that started four months back - and which will be fully reflected in electricity bills in another two months - means a cumulative increase of 70–80 percent, if all billing components are accounted for, i.e., base tariff, sales tax, income tax and excise duty. Base tariff alone has been increased by Rs9.80/unit, reflecting an increase of 50 percent and the all-inclusive cost per unit will be close to Rs60.
The fault lines in Pakistan’s electricity regime and the resulting tariffs are indigenous. The rise in fuel prices has not been dictated by the IMF.
Copyright Business Recorder, 2022
The writer is a former President, Overseas Investors Chamber of Commerce and Industry
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