EDITORIAL: Prime Minister Shehbaz Sharif while presiding over a meeting on electronic procurement, e-acquisition and disposal system ordered third-party validation for all development projects over 2 billion rupees.

This directive must be appreciated as it brings to mind the much touted third-party audit on rental power projects (RPPs) in 2010 at the insistence of the then finance minister Shaukat Tarin with the Asian Development Bank tasked to carry out the exercise.

The results of that audit released in 2011 constituted a damning indictment of the decision to set up RPPs to deal with the then severe energy crisis on several counts including: (i) an excess of 600MW with the envisaged number of RPPs and the recommendation was that only 8 be commissioned which would raise tariffs by 24 percent in addition to the 30 percent increase pledged by the government with multilaterals; (ii) the contracts were signed in haste and amended to benefit the RPPs rather than the consumers; (iii) a contractor who did not deliver as per agreement would still be eligible for capacity payments; (iv) sponsors committed to project efficiency of 32 to 35 percent while the government pledged 95 percent capacity payments; and (v) existing logistic infrastructure did not match the transportation requirement of additional fuel needed for the RPPs.

Thus in essence the objective behind the third-party is a good one, however, there are two lessons learned from the third-party audit carried out by ADB.

The auditor selected must be (i) neutral so that an unbiased assessment that is in the interest of the taxpayers can be carried out; and (ii) must have the technical expertise/capacity to undertake an audit in a particular sector.

In this context it is relevant to note that while an audit brings to mind the financials of a project yet if ADB did not have power sector experts within its ranks its audit report would not have been as comprehensive.

What is a source of growing concern is the annual shrinkage of the budgeted public sector development programmes (PSDP) with analysts maintaining that this expenditure item is routinely overstated to claim the administration’s commitment to development to its voting base while it is then slashed to show to the multilaterals that the government is committed to achieving a sustainable deficit in any given year, particularly when the country is on an International Monetary Fund (IMF) programme.

Given that the country is at present seeking IMF Board’s approval of the 24th IMF programme, considered critical to averting the threat of default, approval that has been deferred, one may assume that it may partly be due to the failure of the government to secure the funding from bilaterals that it had pledged and partly due to PML-N supremo’s announcement a few days ago that 14 rupees per unit subsidy would be extended to all consumers using up to 500 units of electricity per month for two months in Punjab, at a cost of 45 billion rupees to the provincial treasury.

This subsidy will reduce the budgeted 797 billion rupees annual development programme (ADP) by 45 billion rupees –a prime mover of growth in the province with obvious positive repercussions on output and employment opportunities.

While Punjab was under a caretaker setup last fiscal year and comparison therefore not quite appropriate yet it is relevant to note that Punjab’s revised ADP was 641 billion rupees last fiscal year with the rise this year of 797 billion rupees – a 24 percent rise as opposed to 31 percent rise if the budgeted amounts were taken into consideration.

The Punjab government has yet to clarify which component of the ADP would be slashed and one can only hope that the 33 percent earmarked for social infrastructure or indeed the 29 percent earmarked for physical infrastructure are not axed.

It is important to note that this largesse is at a cost to the provincial treasury and it may impact on the conditions agreed in the staff-level agreement on the yet to be approved programme loan on 15 July 2024, which may entail higher taxes to meet the shortfall as neither the federal nor the provincial governments have made any attempt to slash their current non-development expenditures.

Copyright Business Recorder, 2024