The Finance Ministry has identified the issues that continue to dog the energy sector namely line losses, incomplete corporatisation, weak governance, reliance on costly fuel ie furnace oil instead of a cheaper energy source like water, and massive receivables from public and private sector entities. None of these factors besetting the energy sector would surprise anyone.
For the past five years the government has been fully aware of these factors and not only identified them in the Letter of Intent (LoI) it submitted to the International Monetary Fund (IMF) as a prerequisite for the approval of the 7.6 billion dollar Stand-By Arrangement (SBA) but also identified a set of policy measures that are required to resolve these issues. It is however unfortunate that there has been little implementation on these identified measures.
The LoI included a commitment to "reduce non-interest current expenditure by about 1.5 percentage points mainly through elimination of oil subsidies by December 2008 and... to eliminating all tariff differential subsidies by end June 2009". The budget deficit is expected to increase to 8 percent or over in the current fiscal year (the government inherited 7.6 percent in 2008) and this is mainly attributable to the unprecedented rise in subsidy to Wapda/Pepco and KESC under inter-disco tariff differential - a subsidy essentially aimed at rewarding the non-performing discos. Last year, the budgeted subsidy to Wapda/Pepco under this head was 50 billion rupees while actual subsidy was 464 billion rupees. KESC was budgeted to receive 24 billion rupees as tariff differential subsidy while it actually received 45 billion rupees.
Another major problem that continues to beset the sector is the large circular debt that varies between 800 to 400 billion rupees depending on the source, a variation that indicates the amount is not yet reconciled/rationalised which the government had committed to, in the LoI. This accounts for a severe liquidity crunch, which in turn has implied periodic release of unbudgeted finances to the Pakistan State Oil to enable it to pay for the letters of credit. The major culprits are the federal and provincial departments as well as influential private sector individuals/companies who have yet to clear their outstanding bills. In this instance Sindh remains the worst offender with payables of around 24 billion rupees or so.
Weak governance that includes using the sector as employment exchange/recruitment centre by the party in power is yet another factor responsible for the crisis. In a Business Recorder exclusive the Minister for Water and Power recently proposed appointment of junior officers as chief executive officers of power sector companies, a directive that is being opposed by the Secretary of the Ministry; however it is unclear whether the top ministry official will be compelled to issue the notification. In addition, a joint study by the Planning Commission and USAID notes that senior appointments are politically driven leading to the conclusion that inappropriate appointments are merely fuelling the poor performance of the sector.
However, for the general public what is a source of serious concern that may have political repercussions in the forthcoming elections is that the relevant ministers are simply not on the same page and have not been for past five years. The Finance Minister emphasises the need for power sector reforms which the Minister for Water and Power is unable to implement due to obvious political repercussions for if the inter-disco subsidy is eliminated then how can any government endorse an energy tariff that is much higher in poor parts of the country (where performance is naturally very poor) relative to the developed areas. Or disconnect power supply to government departments/ministries without the co-operation of the Ministry of Finance that can cut the dues at source.
The Ministry of Petroleum and Natural Resources is engaged in gas management/ shedding plan given the rising scarcity of the resource and its inability to significantly reduce the large unproductive though politically sensitive demand by the domestic sector. Reforms therefore consist of politically challenging decisions whose implementation is only possible if the next government takes them during the honeymoon period which begins as soon as it takes over power.
Comments
Comments are closed.