Clearing off the stock of the inter-corporate debt in the energy was relatively easy for the new government. But, now it has begun to take the first few steps in the long and much more arduous journey towards stemming the flow of circular debt.
The government has set out an agenda to rationalize energy tariffs in about three years. Over the same period, it also expects that some of the power plants currently running on furnace oil will be converted to coal, while low-cost pipelines will become operational in the medium term. The National Power Policy unveiled by Federal Minister for Water and Power Khwaja Asif also promises to expedite development of large hydro projects.
From the government’s perspective, it seems that clearing circular debt is the most important step to reduce loadshedding. However, the World Bank has stressed that “circular debt is a symptom of the inefficient and unsustainable energy system that can only be addressed once the underlying causes have been resolved-otherwise it would just re-emerge.”
This is also the theme of a recent WB policy note that outlines three fundamental pillars for reforming the energy framework in Pakistan. First, it highlights the dire need to overcome the investment deficit in the energy sector through market competition, efficient energy use and least-cost investment plans based on low-cost resources like hydro power.
The second immediate action calls for steps to improve the sector’s finances. These include modifications to current universal national tariff, improving the operational and commercial performance of utilities and allocating additional gas for the power sector.
The final pillar for power sector reforms involves introducing managerial autonomy and accountability to improve the sector’s governance; those at the helm are asked to adopt performance measurement tools like privatisation, leasing, outsourcing management and sale of shares with management control to monitor public utilities.
The government has announced conversion of furnace oil-based power plants to coal, arranging financing for idle plants, prioritising fuel for more efficient IPPs and reducing T&D losses from 23 to 16 percent. But accomplishing this list of reforms will require grit and political will.
Credit must be given to the government for its recent attempts at tariff rationalisation for commercial, domestic and industrial consumers. But, the decision to raise the benchmark of lifeline consumers to 300 units for subsidies, defies WB’s logic. Five years are a long time to continue footing the bill on blanket subsidies; and it would also pile on in terms of government expenditure.
Among other important issues that may have been overlooked in the National Power Policy include the idea of upgrading and maintaining power plants that are currently running considerably below capacity.
The promise of creating a single regulator for the energy sector instead of OGRA and NEPRA also seems to have been forgotten in the recently-announced policy.