Reforms in gas and power sector

According to a Business Recorder exclusive, the government has yet to implement power/gas sector reforms and, like its predecessors, is meeting the International Monetary Fund's (IMF's) sector specific conditions of achieving full cost recovery through raising tariffs rather than improving governance. Reliance on periodic tariff upgrade to meet the sector's inefficiencies, including theft and a higher than allowed unaccounted for gas, has led to a rise in input costs for the private productive sector which, in turn, has led to negative large-scale manufacturing growth coupled with a consequent impact on downstream industries. It is little wonder that the export sector's sales have suffered as their input costs are high which, private economists claim, has led to unemployment and a rise in poverty levels during the past year. The government data on these two major macroeconomic indicators of particular interest to the public has yet to be released.

The Khan administration also suffers from a very slim majority in the National Assembly, with support from a number of coalition partners, while the ruling coalition is in minority in the Senate. Thus the ruling party's strength in parliament has been the major lacuna in the passage of legislation that the economic team leaders, Dr Hafeez Sheikh, Advisor to the Prime Minister on Finance, and Dr Reza Baqir, Governor State Bank of Pakistan, committed to with the IMF. Thus, amendments to the Nepra and Ogra laws remain pending. The government team also committed to unbundling of Sui Southern and Northern gas companies, a step that cannot be implemented without approval of the Council of Common Interest, a constitutionally mandated body for such issues.

The government has called for a meeting of the Council of Common Interest (CCI) on 23 December 2019 and is expected to put these issues on the table. The CCI decision is to be expressed in terms of the opinion of the majority as per constitutional clause 360. It is to be chaired by the Prime Minister with three federal ministers and all four provincial chief ministers and hence any federal government that forms even one government in a province can easily show a majority. Thus, even if Sindh expresses its reservations about some of the decisions taken in the scheduled CCI meeting, the fact remains that it could be overruled. While one would hope that there is consensus in the CCI as that is the need of the hour; yet the current political environment does not bode for a consensus on any issue. Be that as it may, once the CCI's majority opinion is announced, the government would still have to introduce a bill to that effect in parliament, as per an Ogra official, and that could prove a challenge.

With respect to the circular debt, the Power Division has met the first review condition; notably, it has prepared a comprehensive circular debt reduction plan; however, such a plan was also prepared during the Stand-By Arrangement (2008-10) which was suspended due to the failure of the then government to implement the reforms and Extended Fund Facility programme (2013-16) which relied almost exclusively on raising tariffs as noted above to meet the cost recovery targets set by the IMF. Irrespective of these two programmes, the actual stock of circular debt has continued to rise and disturbingly the Khan administration is following the same approach to meeting the IMF conditions, notably raising tariffs, which is stifling private sector activity.

It is hoped that the government would focus on improving performance in these two sectors as well as forming a working relationship with the Opposition to be able to meet its commitments to reforms - with the IMF, the Financial Action Task Force as well as the people of this country who have been paying a steadily rising price for the state sector's continued inefficiencies and corruption.