by Dr Pervez Tahir in The Express Tribune, January 1st, 2021
The writer is a senior political economist based in Islamabad. He can be reached at [email protected]
While the outgoing year left almost nothing to celebrate, the new year opens its account with the chilling news of a series of spikes in the electricity tariff agreed with the IMF to administer “old wine in an old bottle” to the problem of ever-rising circular debt. This follows the recent admission by the Prime Minister that the PTI was not prepared to deal with the complexities of the energy sector, particularly the circular debt. Having written on the Shibli Report in these columns on October 5, 2018, the admission came as a surprise. Just about the start of the PTI government, Senator Shibli Faraz of the PTI, as head of a Senate committee on circular debt, had succeeded in producing a consensus report well before the present game of thrones set in. As is often the case, this indigenously prepared report was thrown into the cold storage and the old ways of being bribed into reform, the so-called donors assistance for reform, resumed. No one should, then, be surprised over the doubling of the circular debt in a matter of two years.
The Task Force on Energy Reform, set up soon after the formation of the government, ignored the Shibli Report. It is not clear whether the latest integrated circular debt reduction plan has been informed by it. Now a member of the cabinet, one presumes that Senator Shibli must have placed some ideas of his report before the cabinet. A key recommendation related to the reviewing of the fuel supply agreements of RLNG-based projects to deal with the strangulating clause of full capacity payment, whether or not it is utilised. Efforts were made in this direction but the final outcome is not known. MOUs are just that — MOUs. Our bureaucracy’s expertise in dealing with such agreements is minimal, to say the least. A serious problem pointed out by the Shibli Report was the mutually exclusive behaviour of the National Electric Power Regulatory Authority (NEPRA) and the Oil and Gas Regulatory Authority (OGRA). The report proposed a merger, something that needs serious consideration. At least the NEPRA Act should be amended to ensure “the independence and professional standing of the regulator”, said the report.
Other recommendations included handing over of distribution companies to the provinces, privatisation of power companies and private sector participation in electricity supply operations. Useful suggestions were made about the special issues related to Azad Kashmir, merged K-P districts and agriculture. The report revealed that in addition to the admitted transmission and distribution losses of 18%, 8-10% of the billed amount remained unrecovered. A further problem was the FBR taxing companies even on unpaid bills. How could any business operate with a running loss of over 25%, the report had asked. It also challenged the information on loan amounts provided by the major players — Discos, Central Power Purchasing Agency, Power Holding Company and the Power Division. The sheer incompetence in constructing a consolidated financial model was noticed too.
The power sector in Pakistan has operated on the assumption that supply creates its own demand. This adherence to the so-called Say’s Law has brought the economy on its knees. Keynes famously held it responsible for poverty amidst plenty. Whether the plans to end the single buyer approach and to replace it by a competitive wholesale electricity market will do the trick, remains to be seen. In the meantime, the cost of ignoring the Shibli Report will soon be reflected in the electricity bills of all the five income quintiles of the Sensitive Price Indicator. Greet inflation, if you can!
The cost of ignoring the Shibli Report
by Dr Pervez Tahir in The Express Tribune, January 1st, 2021
The writer is a senior political economist based in Islamabad. He can be reached at [email protected]
While the outgoing year left almost nothing to celebrate, the new year opens its account with the chilling news of a series of spikes in the electricity tariff agreed with the IMF to administer “old wine in an old bottle” to the problem of ever-rising circular debt. This follows the recent admission by the Prime Minister that the PTI was not prepared to deal with the complexities of the energy sector, particularly the circular debt. Having written on the Shibli Report in these columns on October 5, 2018, the admission came as a surprise. Just about the start of the PTI government, Senator Shibli Faraz of the PTI, as head of a Senate committee on circular debt, had succeeded in producing a consensus report well before the present game of thrones set in. As is often the case, this indigenously prepared report was thrown into the cold storage and the old ways of being bribed into reform, the so-called donors assistance for reform, resumed. No one should, then, be surprised over the doubling of the circular debt in a matter of two years.
The Task Force on Energy Reform, set up soon after the formation of the government, ignored the Shibli Report. It is not clear whether the latest integrated circular debt reduction plan has been informed by it. Now a member of the cabinet, one presumes that Senator Shibli must have placed some ideas of his report before the cabinet. A key recommendation related to the reviewing of the fuel supply agreements of RLNG-based projects to deal with the strangulating clause of full capacity payment, whether or not it is utilised. Efforts were made in this direction but the final outcome is not known. MOUs are just that — MOUs. Our bureaucracy’s expertise in dealing with such agreements is minimal, to say the least. A serious problem pointed out by the Shibli Report was the mutually exclusive behaviour of the National Electric Power Regulatory Authority (NEPRA) and the Oil and Gas Regulatory Authority (OGRA). The report proposed a merger, something that needs serious consideration. At least the NEPRA Act should be amended to ensure “the independence and professional standing of the regulator”, said the report.
Other recommendations included handing over of distribution companies to the provinces, privatisation of power companies and private sector participation in electricity supply operations. Useful suggestions were made about the special issues related to Azad Kashmir, merged K-P districts and agriculture. The report revealed that in addition to the admitted transmission and distribution losses of 18%, 8-10% of the billed amount remained unrecovered. A further problem was the FBR taxing companies even on unpaid bills. How could any business operate with a running loss of over 25%, the report had asked. It also challenged the information on loan amounts provided by the major players — Discos, Central Power Purchasing Agency, Power Holding Company and the Power Division. The sheer incompetence in constructing a consolidated financial model was noticed too.
The power sector in Pakistan has operated on the assumption that supply creates its own demand. This adherence to the so-called Say’s Law has brought the economy on its knees. Keynes famously held it responsible for poverty amidst plenty. Whether the plans to end the single buyer approach and to replace it by a competitive wholesale electricity market will do the trick, remains to be seen. In the meantime, the cost of ignoring the Shibli Report will soon be reflected in the electricity bills of all the five income quintiles of the Sensitive Price Indicator. Greet inflation, if you can!
Published in Pak Media comment and Pakistan