Several industrial towns in the Punjab came out on the streets in protest against massive load shedding this week past. Householders subjected to unscheduled load shedding in excess of 10 to 12 hours a day in the Punjab also came out on the streets in anger. Protests turned violent as the administration, provincial as well as federal, appeared powerless to check the rising incidence of destruction of public property and life.
Punjab Chief Minister Shahbaz Sharif in his inimitable style with a finger rigidly pointed straight at the Presidency told a gathering that he would lead a long march if President Zardari continues to ignore public clamour for electricity. He suggested that the money allocated for the Benazir Income Support Programme (BISP) be diverted to meet the energy crisis. Meanwhile allegations of corruption, mismanagement and abuse of power against sitting and past ministers dealing with the energy sector have been corroborated subsequent to Friday's Supreme Court verdict that declared the rental power projects illegal. Additionally PML (N) MNAs and MPAs have accused sitting federal ministers of not providing gas/electricity to sectors until they receive a flat rate (the figure being quoted is 50 lakh rupees) - a charge that the PPP has opted to ignore rather than to seek redressal from the courts. With emotions running high it is critical to evaluate proposals - both those proposed by the opposition and bilateral and multilateral donors - to resolve the energy crisis.
Shahbaz Sharif's suggestion that the BISP funds be diverted to the energy sector is simply not a well-thought out plan for two reasons. First and foremost BISP received only 35 billion rupees last year and is budgeted to receive 50 billion rupees in the current fiscal year (an amount unlikely to be realised given the escalating budget deficit). This amount would be nothing but a drop in the ocean given our burgeoning inter-circular debt of over 400 billion rupees that accounts for severe liquidity constraints in the sector compromising the capacity of Pakistan State Oil to pay for the necessary fuel imports.
Secondly the World Bank approved 200 million dollars for the BISP in 2009. This assistance was an outcome of the 7.6 billion dollar Stand-By Arrangement (SBA) negotiated between the International Monetary Fund (IMF) and the government of Pakistan led by the then Finance Minister Shaukat Tarin. The World Bank has disbursed 150 million dollars as first tranche condition to develop a poverty scorecard data collection system first launched in 15 selected pilot districts (to ensure transparency in selection of beneficiary) was satisfied. As per the World Bank website BISP, under its Chairperson Farzana Raja, the recipient of an award this year from the President, did satisfy the second programme tranche conditions: it was no longer parliamentarian driven, a grievance mechanism or a cut-off score for eligibility was developed as well as a plan for national roll out and communication strategy. And yet the second tranche was "on hold" due to the "Bank's inability to provide a positive assessment of Pakistan 's macroeconomic outlook."
While holding no brief for the flawed macroeconomic policies of the past two years, almost since the suspension of IMF's SBA with its last two tranches undisbursed, yet one must legitimately question the Bank's cessation of an approved support for a social safety net project whose need would be greater during times of poor performance of key macroeconomic indicators; except of course if the Bank argued that the poor performance was the outcome of existing flawed policies as opposed to past policies or indeed due to external factors. In this case the World Bank would maintain that release of the second tranche would be tantamount to throwing good money after bad.
The World Bank in response to a query by a Business Recorder reporter stated: "At the request of the Government of Pakistan, the bank cancelled the second tranche of the Social Safety Net Development Policy Credit (US $50 million) and recommitted its amount to Additional Financing (AF) for the scale up of Social Safety Net Programme being implemented by the BISP. This new project worth 150 million has been approved by the World Bank's Board of Executive Directors on March 6, 20112 and the Project Agreements have been signed on March 26 20112." However this amount comes with its own set of conditions and it is unclear whether this amount would be released immediately especially if macroeconomic conditions continue to deteriorate at the current rate.
On its website the World Bank also maintains that in spite of enhancement of the BISP for the Fazeela-e-Taleem programme the amount actually released to each vulnerable family has eroded in value by 25 percent in three years. If the existing rate of inflation continues unchecked, an outcome of our flawed macroeconomic policies, the value of BISP payments would erode further. Whatever BISP's contribution and its erosion to assist the vulnerable, the fact remains that the World Bank was extending concessional funding for it, which would not have been forthcoming for energy projects. In addition, allocations made by the federal government for BISP can be compared to Punjab government's failed and flawed sasti roti scheme. The distribution of laptops at public money must be challenged on similar grounds: computers to deserving students must be awarded by the University administration after deliberations by an impartial selection committee and by the Principal of the University.
So what can the government do to resolve the energy crisis? The government has tried to eliminate the circular debt for four years now through: (i) setting up a holding company that now holds around 391 billion rupee debt since 2008-09; and (ii) compelling banks against their wishes to increase their exposure to the energy sector (30 percent today) by recently once again extending 136 billion rupees. These borrowed amounts have an interest payable that further aggravates our budget deficit accounting no doubt for World Bank's inability to provide a positive assessment to our macroeconomic outlook.
Bilaterals as well as multilaterals also need to share the blame for the existing state of affairs. They have consistently allowed the government to rely almost exclusively on raising tariffs as a means to resolve the liquidity problems of the sector (sourced to the circular debt) without taking appropriate measures to eliminate the circular debt or reduce massive transmission and distribution losses - factors that account for continued massive load shedding and a massive decline in the ability of our industry to compete internationally.
However at the end of the line is the Ministry of Finance. It needs to dramatically change its existing expenditure priorities as well as its revenue generation capacity. It is critical in this case to compel the largest recipients of our runaway current expenditure spenders namely defence and the administration (our civilian and military personnel witnessed a salary increase of a whopping 125 percent in the last four years) to voluntarily slash their budgetary allocations and divert the savings to the energy sector. And it is vital for the government to ensure that the money extended to energy sector projects is spent transparently with consensus from parliament.