No more business as usual—II

Known solutions to our problems start with merit-based governance and justice system adhering to our Constitution. Structural changes need to be made to existing layers of governance of local governments, assemblies, senate and districts; maybe redefining roles and setting bounds for direct election of President, Governors and Prime Minister; implementing financial devolution through the provincial finance commissions (PFCs).

All of this means disruption of status quo, reduction in state patronage and undertaking elite bargain for development to ensure a government that is accountable to deliver medium and long-term solutions. A competitive business environment with a “hands off policy by government of Pakistan (GOP)” is necessary for 7% growth as current growth is not sustainable and survival increasingly challenging.

No more business as usual-I

Clichés of Government’s role being of a facilitator and not run businesses need more action and less talk with enforcement of writ to document 60% of the economy of over Rs 8.3 trillion outside tax net to improve tax to GDP ratio to 12.5% in the short term with medium target of 17.5%.

The end result has to be change in the current low revenue of 12% GDP versus expenditure of 19%. This starts by taxing all businesses and citizens across the board based on Total Remuneration received, including exempted benefits such as utilities, water, fuel, vehicle, plots, housing, airline tickets, club memberships, free medical post-retirement, subsidised meal, property tax, etc., with severe penalty of denial of services to a non-filers, doubling DC value with registration fee at 15%, introduction of wealth tax, with targeted subsidies to individual or industry under defined performance criteria, e.g., upgrading of skills, reemployment within 6 months, increase in exports or taxes quantum, and employment generation.

Furthermore, limiting medical coverage to immediate family, i.e. spouse and children only, implementation of Contributory Pension Scheme such as those in Pakistan State Oil (PSO) and Engro Corporation to reduce burden of pension and adoption of one scheme; either provident fund or gratuity. The Pay and Pension Commission report would provide further guidance for overhauling the system.

Moving on to Governance of “Pakistan NDRC” (like National Development & Reform Commission of China) concept shared in previous article, the deputy prime minister or senior minister has to be a technocrat /experienced professional assisted by domain experts from industry on deputation or externally hired or from DFIs and in consultation with sector think tanks would sketch the next decade’s energy policy strategy with focus on a regional play through an integrated planning approach.

They would need to undertake disruptive measures with deliberations in the parliament. An elected Minister of State (MoS) reporting to Minister would be spokesperson on strategy defined and consented by SIFC. The Principal Accounting Officer (PAO) with 10 years’ experience of coordination in Federal Government, including domain knowledge of energy, would monitor plan execution with performance evaluation of MoS and Secretary will be by Deputy PM/Sr. Minister.

Resource Development happens extensively in GOP but apparently not to enlighten or encourage independent thinking or fostering a culture of innovation, adaptability and risk taking. We are not encouraging performers or improvement in skills that develop our Human Resource (HR) in bureaucracy that presently lacks capacity to effectively manage the complexities of modern statecraft.

Despite a low number of Higher Education Institution (HEI) graduates employability, enrollment is increasing (before 2002 it was delivering 200k and by end of that decade there were 2000k undergraduates of which 31% of students were unemployed with 51% being women).

Lack of market orientation of HEIs is hurting entrepreneurship and also not providing skills of problem solving, creativity, critical thinking and effective writing and speaking ability with individual grooming.

Ministry of federal education and professional training (MoFEPT) therefore, needs to define implementation of an education roadmap to utilize 4.5% of GDP vs 2.38% today and with ministry of science and technology (MoS&T), HEC and National Vocational & Technical Training Commission (NAVTTC) implement a technical roadmap by utilizing 1.5% of GDP over a 20-year horizon including, ensuring inclusivity.

Values and induction of principles of professionalism, ethics, tolerance and respect to diversity of the 241.5m (growth of 2.55%) nation have to be paramount. HEC needs to allow revamping and upgrade of curricula to meet job market requirements and it be left to institutions with guidelines only provided by HEC and yearly performance undertaken by it.

Furthermore, “12% higher education enrollment rate with 4% students coming from international examination boards constituting 87% in the HEI, is resulting in massive disenfranchisement of talented youth. Focus needs to shift to providing need blind access to quality education”.

Change is difficult but Pakistan does require a reset sooner rather than later.

Unbundling of gas utilities, namely SNGPL and SSGC, into transmission and despatch companies, with import of gas undertaken by PSO and building infrastructure at port and transmission has to be responsibility of ISGC.

Development of Pakistan gas hub at Multan with PMEX, pricing of fuel at imported gas average price and not WACOG will encourage investment in the gas sector. Confidence-building of E&Ps, including allowing new find gas sale directly with GOP guarantee off-take for 5 years to extent of 95% of production, is needed.

E&Ps would be obligated to sell directly to despatch company, city gas distributors or through wheeling to their own customers. Ogra should focus on TPA without becoming a “policeman” in determining ‘who’ and ‘why’ of an entrepreneur’s business model, e.g., SSLNG.

PSO needs to compete in the OMC cloud and a pending proposal since 2017/18 of unfreezing 25% PSO shares, changes in Marketing of Petroleum Products Act 1974 and implementation of the Musharraf regime’s ordinance draft is a low-hanging fruit disinvestment that requires immediate implementation.

It should be followed by fuel retail price and IFEM (Inland Freight Equalisation Margin) deregulation while positioning PSO for partnerships with major retail players. Already PSO, OGDCL and PPL will partner with ARAMCO/ADNOC on a petrochem project. Despite resistance from retailers and haulers the challenges are surmountable with eventual benefit of development of 45-day strategic storage by GoP.

As a nation, we should appreciate the benefit and success of a vertical utility. K-Electric (KE) took 15 years of focus, spine of steel and team commitment to achieve deliverance of reliable power and improvements in customer service.

It is a transformed private monopoly that is now willing to compete in the distribution segment and an unbundled license has been approved by Nepra. In parallel, it has initiated a vision to achieve 30% generation of 1182MWs of electricity generated through renewable sources and an investment of Rs 484 billion by 2030.

The company reduced its transmission and distribution (T&D) losses from 34.2 to 15.8% over past 17 years, and the target is 12.8% by 2030. The Lesson to be learnt: Turnaround requires time, patience, and endurance.

A similar approach is required instead of provincialisation of DISCOs (2021-22 loss of Rs520.30 billion) or privatisation as the FDI will not be forthcoming. It needs to be a ‘3P’ between province, federal government and IPPs of the Disco franchise area.

The Major equity should be of IPPs and public, including a staged 30% free float, loss reduction, including a target of increasing recovery from low 92.7% in FY23 to 96% by FY25 with priority focus on Pesco, Sepco, Tesco, Hesco, Qesco, AJK (83% electricity losses).

The ongoing campaign against power theft targets low-income and small-scale offenders (Rs 7.9 billion recovery out of Rs 589 billion) with limited action against protected defaulters and insiders or transactions through fake firms. This approach to the challenge constitutes an old narrative to maintain the status quo and protect the elite.

Furthermore, NEPRA should have started the Competitive Trading Bilateral Contract Market (CTBCM) with Pakistan Mercantile Exchange (PMEX) and with Gencos, at the expiry of KAPCO, Gul Ahmed and Tapal Power Purchase Agreements (PPAs) and expand the slate as PPAs expire in coming years of other and IPPs that will revert to NTDC/Gencos fold.

(To be continued)

Copyright Business Recorder, 2023