IMF talks

With sleeves rolled up, Federal Finance Minister Shaukat Tarin has begun talks with the IMF (International Monetary Fund) at Washington. The outcome of these meetings is crucial for the incumbent government which has to walk into the next general elections in 19 months' time - if not earlier. Critical for its vote bank politics, at this stage, are rising inflation and mounting electricity and gas tariffs - both critically linked to the IMF conditionalities.

Power sector remains the sore point on the IMF agenda; it's being carried forward from one programme to another for well over a decade. The IMF had all along been advocating restructuring and privatisation of the power sector. None of the two was implemented either by PPP or PMLN in their last tenure of 5 years each. The consequences: poor performance by the sector and the mounting circular debt. In the PTI government, the circular debt build-up trend has substantially reduced in comparison to the previous years. To manage circular debt, the IMF all along maintained its opposition to providing subsidies to the sector and instead favoured a tariff increase. The IMF's stand on this matter is not new. For the incumbent government, any further increase in tariff is not desirable - politically and for the economic growth of the country. Bringing around flexibility in IMF's stance on this issue is one of the few challenges to be managed by the Finance Minister with the IMF.

Circular debt took roots in the last tenure of PPP which witnessed rampant emergence of IPPs on the ailing landscape of the country's power sector and ill-conceived power purchase agreements (PPAs) rolled out by Private Power Infrastructure Board (PPIB). These were clearly skewed in favour of IPPs. PML-N followed the same trend but the fuel mix shifted to coal and LNG. In the last year of PML-N government circular debt doubled from Rs 0.723 trillion (30.06.17) to Rs 1.48 trillion (20.06.18). Whereas, during the tenure of the PTI government the debt has so far shot up by 57 percent to Rs 2.327 trillion (30.6.21), which is an improvement to a moderate extent.

The induction of Special Assistants to Prime Minister (SAPMs) on Power and Petroleum into the government, one after the other, did manage to taper off the rising trend of circular debt but it could not come up with a sustainable and effective solution to solve the issue. This is no doubt a complex exercise, which in the face of ongoing rift and divergence between bureaucracy and SAPMs is not likely to deliver a promising result. Presently, there is no SAPM to advise on this vulnerable sector and neither is there any wisdom in having one till the responsibility between the two is clearly defined and enforced.

Gas sector is doing no better. The circular debt within the gas segment is reported to be Rs 534.97 billion at the end of June 2021, which is up 5.6 per cent from a year ago.

OGDC's receivables from SNGPL and SSGC amounted to Rs 273.7 billion at the end of June 2021, whereas, the corresponding figure in case of PPL works out to be Rs 261.27 billion.

Induction of LNG into our system was an inevitable but an expensive solution. The LNG global market is notoriously speculative where Pakistan, with shallow pockets, has little room to play around. In these times of gas crisis, it is reported that Pakistan LNG did not receive any offers in a tender seeking eight liquefied natural gas (LNG) cargoes for delivery till January 2022. This could lead to a gas and power shortage crisis and rising power and gas tariffs in the country. Pakistan has been struggling with energy and soaring power prices for the past couple of years.

Whatever flexibility the Finance Minister extracts from the IMF on this account may provide timely relief in tariff management but by no means will move the gas and power sectors out of their declining mode. Something substantial has to be done at home requiring difficult decisions and hard actions on ground. This is not likely to happen in the remaining 19 months or so as this period would most likely be a period of appeasement, compromises and political expediency. The energy sector of the country riddled with circular debt and non-affordable tariffs would once again limp into the custody of the new government - for the third time in a row.

(The writer is former President, Overseas Investors Chamber of Commerce and Industry)

Copyright Business Recorder, 2021