EDITORIAL: Reportedly, a much-needed amendments in Ogra (Oil and Gas Regulatory Authority) and Nepra (National Electric Power Regulatory Authority) laws are being discussed by the caretaker government, which would empower both the regulators to notify the electricity and gas tariff without the interference of the federal government.
It is urged that the upcoming government (or outgoing caretakers) should initiate the process of this amendment as it seems imperative for smooth functioning of both power and petroleum sectors. This would be a welcome move, as this would help curb any future growth in circular debt and avert politically motivated actions where an outgoing government leaves the burden on the incoming administration to handle.
In 2022, at the time of the vote of no-confidence (VONC) against the then prime minister Imran Khan, the PTI (Pakistan Tehreek-e-Insaf) government reversed the prices of petroleum products and power, which not only delayed the IMF programme but also resulted in piling up of the fiscal deficit and energy sector circular debt.
Another instance was during 2016-18 when the PML-N (Pakistan Muslim League-Nawaz) government did not increase the gas and power tariffs even though the costs were rising. The process had to be initiated by the subsequent PTI government under the conditions of the IMF.
These delays do not help or serve anyone ultimately. The consumption does not adjust to pricing while the gap between the cost and recovery results in the unabated growth of both power and petroleum circular debts, which eventually have to be recovered from consumers in retrospect (and in some cases, the interest charged on the piled up circular debt is added to the final tariff as well). And, if at all, it is not collected from consumers, the government absorbs it in its debt and the whole nation pays the tax in the form of inflation.
It is a pretty lose-lose situation for the government and the consumers alike. Eventually, it is the economy at large that suffers. That is why having independent energy regulators is of utmost importance. They should be autonomous.
These would be similar to SBP (State Bank of Pakistan), which is independent in making monetary policy and managing exchange rates. There is always a conflict of interest when the federal government makes monetary decisions.
However, this is not an easy decision as, historically, the backlash of higher petroleum, gas and electricity prices was always against the government of the time. That is why every successive government shies away from making the right decisions. And we have kept on playing the merry go round – at least since 2007 till to-date.
The economic limits to absorb the circular debt and the fiscal limits to digest the general government debt are being tested. With both government and energy sectors hovering on the verge of default, there is no more room for complacency. Delaying tactics have reached their expiration dates.
The government must exhibit realism and call a spade a spade, and pass on the impact of increase in the cost to consumers or have them budgeted as a subsidy.
However, the problem is that the energy — especially, power prices — have increased so much that affluent domestic, commercial, and industrial sectors do not have the capacity to bear any further burden of built-in cross-subsidy in the tariff to lessen the impact of high energy prices on poor and lower middle-class consumers.
Be that as it may, the only viable way to deal with this mess is to renegotiate the debt structure with the Chinese IPPs (Independent Power Producers) as these debt servicing and repayments would need to be spread over the life of the projects to make the power sector viable and spur industrialisation.
Copyright Business Recorder, 2024
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