Power sector: ‘Economic growth can be accelerated by overcoming inefficiencies’

LAHORE: Pakistan can accelerate its economic growth and job creation by overcoming inefficiencies in its power sector, which needs to focus on eliminating waste, promoting the shift towards cleaner energy and attracting private investments.

These views were expressed by Federation of Pakistan Chambers of Commerce and Industry’s ruling group Chairman Mian Anjum Nisar while talking to an industrial delegation, who met him in his office here on Sunday.

The government’s regular attempts to raise power and gas tariffs along with hike in petroleum products rates would eventually hurt the Prime Minister’s endeavour to reduce production cost in the country, announced by him in different phases, including power tariff for SMEs and cut in key policy rate to 7% by the central bank.

He said that the governments have always been forced for exorbitant hike in energy tariffs just due to excessive capacity payment to IPPs in dollars, leading to further addition in public debt of the government, which ultimately passed on to the end consumers.

“The authorities, instead of impeachment and forensic audit of IPPs, have enhanced base power tariff recently by almost Rs2 per unit., giving priority to the interests of IPPs, setting aside trade and industry’s interests,” he lamented.

The FPCCI’s ruling party Businessmen Panel chief said that it is vital to make power and gas tariffs for domestic as well as export sectors compatible to tariff being applied in regional and neighbouring countries. The industry is presently paying more than double power price as compared to regional tariff of about 7.5 cents/unit in neighbouring countries,” he said and added that low energy tariff was the only way to ensure more investment in the country.

The Federation of Pakistan Chambers of Commerce and Industry’s ruling group has resented the frequent jump in electricity tariff and petroleum products’ prices, which is made on behest of the IMF, besides appeasing the Independent Power Producers, stating the move will dent the Prime Minister’s vision of lowering cost of industrial production.

Mian Anjum Nisar said that government’s move of raising power cost by more than 15%, besides lifting rates of petroleum products twice a month to qualify for revival of the stalled $6 billion IMF loan program, on behest of the IMF would make the Pakistani products uncompetitive in the international market.

He observed that electricity rates have been increased on the plea of rising circular debt, which are, in fact, growing due to high sovereign guarantees of rate of return to IPPs in terms of dollars not rupees, besides continued depreciation of local currency against dollar.

“A major reason for the chronic and growing circular debt problem is the size of the guaranteed capacity payments or fixed costs paid to the Independent Power Plans (IPPs),” he added.

Mian Anjum Nisar said that the total circular debt increased by Rs538 billion during the fiscal year 2019-20 at a rate of about Rs45 billion per month. During the Jul-Nov 2019-20 period, circular debt increased by Rs179 billion at a rate of Rs36 billion per month.

Now, after an agreement has been finalized with the IPPs, the power sector reforms should be a top priority for a quick yield of economic gains, Anjum Nisar said and added that reforms that focus solely on rising energy prices had already led to an excessively high cost of electricity because of inefficiencies in the system, negatively impacting the industrial cost.

Copyright Business Recorder, 2021