Power sector

According to a Business Recorder exclusive, a power sector plan has been prepared that envisages electricity price freezing based on quarterly tariff adjustments that would not be passed on to the consumers but would not bar Nepra from determining the fuel adjustment charge every month. The plan includes issuance of zero coupons through private banks to retire receivables of Independent Power Producers (IPPs), as well as the debt parked in Power Holding Private Limited (PHPL) estimated at over one trillion rupees, and spread over debts of eight public sector power plants for 30 years and 40 years. Circular debt is envisaged to be reduced through the government (i) absorbing the PHPL into its budget and taking responsibility for servicing all loans incurred by the sector; and (ii) reducing the stock of outstanding payables through privatisation/sale proceeds of power assets, recoveries from outstanding stock of receivables, existing debt servicing surcharge and rightsizing sector-related subsidies. Pending subsidies would be released for the ongoing year as well as next year with the plan improving the sector's financial health within the next three to four years, including debt stock retirement, while ensuring that power is available to consumers throughout the year.

The government is reportedly also considering spreading the debt repayments of three coal-fired plants, three RLNG plants and two nuclear plants from 10 years to 30 to 40 years; and not to make net hydel profit part of consumers tariff but to be payable from Wapda's own profits as per the constitution. As it is, the consumers are overburdened with taxes on electricity estimated at over 150 billion rupees.

The plan is subject to approval by the International Monetary Fund (IMF) given that Pakistan is on a 39-month programme at present though it unclear whether the Fund's recent Press release announcing the staff-level agreement on the second review incorporates this plan or not. While details would be available as and when the Fund uploads the second review documents on its website yet there appears to be some merit to the plan where the sector's mounting interest payments on ever-rising loans, reflecting the sector's inefficiencies and mismanagement, continue to be passed onto the consumers and the taxes levied on this critical input for production are raising costs thereby disabling our productive sectors from competing internationally or in some instances domestically, thereby fuelling smuggling.

Sources revealed to Business Recorder that the CPPA-G has sought a raise in tariffs for November 2019 to January 2020 that would take the current rate from 15.50 rupees per unit to 17 rupees per unit and Nepra has informed the government that there is considerable data fudging by the Power Division - a development that was highlighted by this newspaper months ago in the aftermath of the claims by the Federal Minister Omar Ayub Khan that losses had dramatically declined in the sector as these claims were not independently verifiable.

It may be recalled that the power sector and the tax collection entity, notably the Federal Board of Revenue (FBR), represent two problem areas where Fund programmes have focused time and again and where successive governments, including the incumbent, have failed to implement the agreed time-bound action plans and/or to meet the structural benchmarks for political reasons. The proposed plan attempts to deal with the power sector issues in a sustainable manner though the period to achieve full cost recovery would be well beyond the IMF's current programme; however, one would hope that the proponents can sell the proposal to not only the cabinet, particularly the Ministry of Finance which is spearheading the negotiations with the Fund staff, but also the Fund staff. While initially the FBR may have to rely on other sources to generate revenue that is currently being generated by the power sector yet one would assume that concurrently the FBR would undergo some reforms that make the tax structure equitable, non-anomalous and fair for that way alone lies the country's ability to attain economic self-reliance.