Moving from failure to failure successfully?

Winston Churchill said, ‘Success is the ability to go from one failure to another with no loss of enthusiasm’. Quite bemusing that we have become quite experts in moving from one failure to another without losing any enthusiasm, though the sad part is that the failures increase in size and quantum.

As I tried to point out in my article “Elephant in the room”, Let’s talk about SOEs again, where we bleed profusely but are ever ready to dole out relief package after package, that too of no avail.

With respect to the almighty SOEs there must be a will that needs to be seen on the part of the policymakers to stop throwing good money after bad and stop giving any new relief packages. Privatise where we can and reduce the portfolio. PIA is a case in point where we are ready to dish out billions after billions to keep this white elephant standing.

Learning from examples is a good way that wise people use, so doing the same we look at Norwegian airlines which entered bankruptcy protection and closed its long-haul operation in 2019, few expected the airline to survive. But after a complete corporate overhaul and a refocus on short-haul routes, Norwegian airline is thriving once again.

To give perspective as to how well-equipped government of Norway was to give a relief package to their airline let’s have a look at their sovereign wealth fund. In September 2023, it has over US$1,477 billion in assets, and held 1.4% of all the world’s listed companies in 2019, making it among the world’s largest sovereign wealth funds.

This clearly indicates that if they wanted, they could have kept the airline as it is and provided relief package after relief package for the next decade, rather they chose to hard restructure the airline and started making money in short-haul flights.

Even today their flights do not provide any free meal or coffee, rather you pay for the ticket and add more to this price for your hand carry and check in baggage, if you feel like eating something you must pay for that in the flight. These flights are comfortable but with no frills, small single aisle aircrafts ferrying passengers across Europe, and it is airline of a country that boasts one of the largest wealth funds.

On the other hand, is a country where a bailout package of only three billion dollars from the IMF has seen the country go to the brink of default and reel back from it with soaring inflation and depleting currency value and yet we are generous enough to provide bailout package to our all SOEs right left and centre. In comparison to Norwegian airlines, we can rightly boast one of the highest headcounts per seat and inefficient operations and lousy financial management.

Similar is the case of our power sector where we are stung by excess production capacity, yet we are more than enthusiastic to add more to it.

When it comes to everybody and their grandmas prescribing medicine for all our power sector woes, it comes to my mind to be reminded that ‘Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen’.

Our national enthusiasm has gained much more momentum when it comes to finding the blame worthy parties and then prescribing measures that can alleviate the problems. This looks like the witch hunts of medieval Europe where you could burn anyone you don’t like on the stake. For the power sector the next witch that needs to go up in flames are the IPPs (independent power plants).

We are facing excess capacity and by virtue of capacity charges alone we will be paying 124 billion rupees in the next two quarters. However, we have transmission restraints where we are unable to evacuate renewable energy from our wind corridor in Sindh and same is the case with the energy produced at our nuclear power plants or Thar coal plants.

Blame has been conveniently placed at the shoulder of IPPs and everybody is blood thirsty to see these monsters go down. What we fail to understand that our transmission and distribution losses including lack of recovery amounts to almost fifty percent of our current electricity price. Outstanding bills from government departments alone run in hundreds of millions, media has been providing figures that run into billions of rupees rather over hundred billion due to one disco alone. We need to address that in order to provide relief to the masses.

Reneging on our existing contracts would do no good to the economy in the short run as the impact on per unit price would be miniscule as our total price to the consumers constitutes a bigger portion related to our inefficiency rather than the actual price of power consumed or in the long run as our efforts of attracting international investment will be marred by the mistrust that such renegotiations will create.

We cannot shoot those who answered a call to invest in Pakistan in a framework that we believe now to be flimsy and retarded. Yes, what we need to do is to understand how not to repeat those mistakes in the future.

Usually, our response is more like a knee-jerk reaction than any well considered strategy. Trying to strong-arm the small domestic net metering clients will not solve the problem but it would certainly prove the mental capacity of our policy makers.

Due to similar reasoning wheeling as an option has not been able to take root because the mandarins at the helm of power sector do not want good load centres (corporate and commercial clients) to move to B2B arrangements with power producers using the policy framework of wheeling. Our policy making at national level seems to be myopic and blind-folded to call out lightly.

Unfortunately, we are very good in stamping out any avenue that may prove to be beneficial in the long run. We do not want to change our ways rather we want to repeat the same mistakes with more vigour and focus than before.

Capacity charges are paid for the electricity not produced and there could be two reasons for not producing power and getting paid, one there is transmission constraint and second there is demand constraint. Either way the solution is simple, fix the transmission or increase the demand.

Both are easier said than done. Transmission and distribution would require billions of dollars of investment but unless we understand the problem and agree on a framework to fix it not a single step could be taken. To start a journey of thousand miles we need to take the first step.

To increase the demand if that is the constraint of not despatching power, we must be careful before we suggest any measure. If we do not produce and yet pay Rs124 billion in capacity charges, then producing power and providing to the export-oriented industry at some discounted rate makes quite a lot of sense. The problem with such framework could be that it can be prone to misuse or abuse.

For exporters all proceeds of exports when brought back to the country an adjustment or rebate or incentive could be given that would reduce their overall cost and thus increase profits. This could be linked to simple performance measure of bringing back export proceeds.

This would incentivise the exporters to produce more thus utilising more power. There could be a lot more avenues that could be found out to utilise excess production in a way that adds to the national GDP and will be able to pay for the electricity used, policy makers need to clarify the objective in their minds.

It could be to utilise excess power generation in a manner that adds to GDP, be able to pay at least all the variable cost and provide jobs and move the circle of economy. In this case the least outcome would be that though we still pay for the fixed charges but that is not in vain as electricity is produced and some economic activity is generated, and foreign exchange is either saved or earned.

We save this discussion for some other day with a call to our policymakers to start thinking beyond the horizon, do something that focuses on long term health of this nation.

Copyright Business Recorder, 2023