EDITORIAL: The federal government reportedly failed to get the green light from the Law Division to impose debt servicing surcharge on electricity consumers as a component of the finance bill because the Supreme Court prohibits the government from creating such powers through a finance bill. Subsequently, the Power Division introduced it as an amendment bill to the Nepra Act 1997 (Regulation of Generation, Transmission and Distribution of Electric Power Act 1997). Energy Minister Omar Ayub categorically denied seeking to amend the Nepra law through the finance bill but added that amendments to the law had been introduced in the National Assembly "to follow proper and due legislative process even if it takes a time consuming and longer route."
In anticipation of the government's success in the passage of the bill, the Finance Ministry disbursed 10 billion rupees in the section on subsidies in the 2019-20 accounts to pay for the sector's debt servicing costs and labeled it as part of the 1.2 trillion rupee Corona relief package.
Be that as it may, it is relevant to note that Pakistan's economic team leaders pledged in the first review of the ongoing Extended Fund Facility (EFF) programme in the section Memorandum on Economic and Financial Policies (MEFP) uploaded on the International Monetary Fund (IMF) website in December 2019 that "we will introduce new surcharges as needed to ensure that the circular debt reduction targets under the plan are met." That pledge remains pending.
What is relevant to note is that the staff-level agreement on the EFF dated six months before in July 2019 did not refer to the imposition of surcharges with the MEFP, stating that: "the stock of circular debt stands now at 762 billion rupees, in addition to power sector liabilities of 807 billion rupees parked in PHPL through March 2019. These represent a significant fiscal risk that we must swiftly address. Thus we have established a task force on energy to advise the Prime Minister on the measures and key decisions needed to ensure a successful reform...developing a strategy to address circular debt in the power sector...will include: (i) a monitoring and incentive framework for strengthening the sector's performance, including bill collection and distribution losses; (ii) improving distribution companies' governance; (iii) reducing or eliminating implicit government subsidies to particular economic sectors; (iv) assessing investment needs in the sector and designing and investment plan; and (v) addressing the stock of circular debt to service the interest on accumulated power sector debt." A look at these strategy components clearly reveals that the emphasis at the time was on improving governance and making the sector more efficient - an approach that clearly was abandoned in favour of passing the buck onto the hapless consumers by December 2020 (pre-Cvid-19).
It is unclear whether the task force or the Power Division recommended what has been the modus operandi of previous administrations dealing with a poorly performing power sector with rising circular debt: to pass on the rising costs to the consumers. The fact that passing on the buck to the consumer strategy continues to this day undermines the claims of the Energy Minister that the sector's performance is improving.
The attempt to impose a surcharge to meet the debt servicing costs of the power sector cannot be supported; instead one would hope that the focus of the Power Division should be on improving governance with the impact clearly visible on the ground rather than on paper alone.
Copyright Business Recorder, 2020
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