Ministry of Water and Power's inexplicable proposal

A Business Recorder exclusive revealed that the Ministry of Water and Power has proposed allowing power generation companies (Gencos) to directly import furnace oil. Such a proposal, if approved, would effectively imply that the standing of the Pakistan State Oil (PSO) as the largest oil marketing company would be compromised.
From an economic perspective one major supplier is not supported in principle for the simple reason that it allows the supplier to set a price in excess of what would have been possible in a freely competitive market; however a state-run, large supplier of a critical product/utility/service is considered appropriate as the state is not in the business of maximising profits and thereby setting a price at the maximum possible level. Or in other words, a large state operated supplier has the explicit objective of ensuring that the consumers, particularly the vulnerable groups, are protected from unjustifiable price rises. In case the state opts to support full cost recovery in an effort to ensure financial feasibility then it may even consider a subsidy targeted to the vulnerable.
There is however a further complication with respect to the PSO's monopoly in importing furnace oil. The Gencos have large over dues to PSO, a major component of the circular debt, which are compromising PSO's ability to pay for oil imports. Needless to add, the elimination of the circular debt, acknowledged as a major objective by the government in the first Letter of Intent dated November 2008 that it submitted to the International Monetary Fund board is a reflection of an agreed reform plan. However, the goal remains elusive. And this is in spite of the fact that the government did issue term finance certificates twice since it went on the IMF programme in an effort to eliminate the debt. And a critical factor that accounts for the failure to eliminate the circular debt is the failure of the Gencos to clear their dues to PSO.
The PSO management rightly argues that if the Gencos can pay for the oil imports directly, then why do they not first clear all their dues to the PSO? This is a legitimate question and one would have hoped that the Ministry of Water and Power had looked at the modalities of this issue prior to making the proposal to allow Gencos to import directly. In addition, the PSO management raises the issue of violations of long-term contractual obligations that it has with Gencos (Kot Addu/Kapco/Genco-III for example), which may lead to legal complications. PSO also maintains that as the largest importer of fuel oil, it imports at highly competitive rates through a transparent tendering process.
Given this context, the proposal of Water and Power Ministry to allow Gencos to directly import furnace oil is not backed by any tenable rationale. It is precisely such decisions, which are not rooted in logic, that account for much of the woes that beset the economy today.