Another power tariff hike and limited reforms

Prime Minister Gilani has reportedly approved up to 53 percent increase in power tariff of distribution companies and cabinet ratification of the decision is expected tomorrow (Wednesday), according to a Business Recorder exclusive. While this announcement is expected to be met with public dissatisfaction that may spill onto the streets, especially if accompanied by continuing massive loadshedding, yet it must be acknowledged that this decision is premised on a power sector reform strategy that was proposed by the World Bank as a component of International Monetary Fund's 7.6 billion dollar Stand-By Arrangement (SBA). That the strategy was accepted by the government of Pakistan is noted in the Letter of Intent (LoI) submitted to the IMF board dated 20th November 2008 and include: (i) adjusting domestic petroleum prices as and when international prices rise or fall, a policy that is being implemented, (ii) eliminating electricity tariff differentials by end June 2009 through increasing base tariff according to a schedule agreed with the World Bank by end December 2008. The time line was not adhered to due to political considerations and accounts for the Prime Minister's approval to raise base tariff further that is awaiting cabinet ratification, (iii) the government will use fuel and other surcharges as necessary. It is, however, unfortunate that the large sum collected each year from fuel and other surcharges has not led to a reduction in the budget deficit which again is hovering at around what the present government inherited namely around 7 to 7.6 percent; and (iv) elimination of circular debt that as per the LoI would include the identification of all debts owed and due among the corporations, duly reconciled, the determination of the validity of the claims, a schedule by which respective entities will discharge their liabilities to each other, and a timeframe during which the Federal Adjuster will use his powers to make adjustments, in case of failure, to adhere to the approved schedule. This too has yet to be implemented. This is not the sum total of the proposed energy sector reforms that were agreed by the government and that remain pending. For example, the government had agreed to dissolve Pepco but has reneged on this promise twice, the last time as recently as on November 1, 2011. Pepco's objectives remain unfulfilled and include (i) stopping loadshedding; (ii) reducing line losses, minimising tripping and theft; (iii) development of an integrated automated power planning system for generation, transmission and distribution to ensure system stability, fault isolation and upgrade relying, metering and tripping system in the NTDC and Discos; (iv) constructing new grids; and (v) revamping generation systems and improving customer services. Pepco has done little to ensure minimising loadshedding, or reducing line losses and transmission losses and given the fact that the Presidency directed that Pepco disbandment be postponed yet again, it is hoped that the entity would begin some work in these areas. However, it is relevant to note that members of the executive focused almost exclusively on politics are also responsible for Pepco's continued failure to achieve some of its objectives. One notable example is Prime Minister's inexplicable recent statement in Gujjar Khan where he announced an extension of the country's beleaguered electric supply to that community and justified it by stating that he would ensure scheduled as opposed to unscheduled loadshedding - an assurance that would baffle the rest of the country suffering from massive daily loadshedding. A technocrats' government was necessary to undertake politically challenging economic reforms or such was the logic of the Greek and the Italian parliaments. The democratically elected governments of these two heavily indebted countries initially resisted and then succumbed to pressure from donor countries notably Germany and France given the serious threat of being ousted from the Eurozone. While acknowledging that the socio-economic and political comparisons of these two countries with Pakistan are bound to be imperfect yet Pakistan, a perennial IMF borrower, has had technocrat governments in the past and currently boasts a technocrat Finance Minister with limited, if any, success. The reason remains the failure of our technocrats to put the economy on the path of sustained reforms as well as their inability to reduce current expenditure or indeed increase allocation on education that would change the way our people vote (based on baradari/tribal affiliations). One can only hope that all the political parties get together to formulate a blueprint for the economy and stick to it no matter what, but given the current state of the confrontational political climate this would most likely remain a pipe dream. Copyright Business Recorder, 2011