The importance of FDI in Pakistan cannot be overemphasized – especially in a time of extreme dollar liquidity crunch in the financial account of the balance of payment. However, delays in the repatriation of dividends and other payments to the foreign shareholders of companies in Pakistan have made the investors extremely jittery. Forget about a green field project - no one is ready to invest in the expansion of existing businesses.
The problem is across the economy. However, one area where the investment is direly needed is the power sector – in the generation, transmission, and distribution chains. NEPRA is pushing for it. In its State of the Industry Report, it is emphasizing that the need for investment in Pakistan is imperative for the energy economy to keep on rolling on a sustainable basis. But investors care about the rate of return. There are incidences in Pakistan where foreign investors investing in a public utility haven’t repatriated a cent in the past fifteen years. And yet, NEPRA wants them and others to invest. Too much patience is warranted.
The regulator is in the process of developing a competitive energy market. That can only develop if the investors come in with some capital. NEPRA’s job is to lay down the regulatory framework and provide a conducive environment within its realm. There are challenges there, but these can be sorted by engaging the stakeholders of the power sector. However, regulators and market players are helpless as well as hopeless about the deteriorated macroeconomic conditions.
Pakistan has a high generation cost. There is a need to lower the generation cost through the induction of new and efficient power plants on a ‘take and pay basis. IGCEP is being introduced to have systematic induction of power generation and pave the way for structured expansion of the system. Then the upgradation of transmission and distribution systems is warranted to lower the losses which NEPRA is pushing for. For all this, investment is required, and it’s FDI in most cases.
Transmission policy 2015 has provided a broader framework for the induction of the private sector in transmission system operations. However, to date, no action has been taken to identify the transmission projects with details including sites to attract private investors. On the other hand, NTDC is finding it hard to finance and execute investments due to techno-commercial constraints.
NEPRA emphasized that the financial health of the whole power sector depends on the performance of the distribution segment. The job is to supply electricity to the end consumer, collect revenues, and pay back to the transmission and generation companies. But their limited autonomy is a big constraint. They need financial independence, and that requires private investment and control.
These are some of the observations of NEPRA. The energy ministry must address these issues to attract investment in an otherwise difficult scenario. This cannot be overemphasized. Investment in all sectors is welcomed. But we need to categorize and prioritize areas.
Investment by foreign players has multiple advantages. The most important is infrastructure – especially power. These investments help to bridge the balance of the payments gap. And to provide employment and open the economy, we need to kick-start the economy and keep on rolling through these investments. That is why the risk-return matrix is important. No one wants to be stuck with the investment – be it a shampoo-selling company, medicine-making, or a power distribution company. SBP needs to revisit its policy of profit repatriation for improved future investment. Otherwise, the investors must have higher risk cover against delays in payments.
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