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Pakistan requires sustained GDP growth of 7-9% for 30 years. For that, by 2030 Agriculture will need to achieve 6% growth and its contribution to GDP be 35% and tax to GDP ratio be 20%.

Also improve social indicators from 2.1% to 4.5%, reduce fertility rate from 3.2 to 2 births per family, increase goods and services export to 20% of GDP by 2027 while undertaking $ 75bn plus debt repayments over the next 3 years necessitates a credible structural reform package.

Starting with Governance, Ministers have to be technocrats assisted by domain experts from industry on deputation or externally hired and in consultation with sectorial think tanks to sketch the next few decades’ energy policy strategy with focus on a regional play.

Imagineering implementation of energy reforms–Vl

They need to undertake the required measures with deliberations in the parliament. Elected ministers of state report to respective ministers and they should be spokespersons on policy and for ensuring implementation through bureaucracy having over 10 years of domain knowledge and experience and performance evaluation of each MoS and Secretary be conducted by Minister.

Next, Pakistan needs to redefine institutional parameters and boundaries for Ministries of Energy, Science and Technology, IT, Education, Industry, Agriculture and Law, given the interdependent environment and consolidate their roles and responsibilities for effective cohesion and governance.

Various government departments such as Commerce, Industry, Exports, BOI, Maritime Affairs, Railways, Communication, Science and Technology, IT, and Education can be unified into Planning Commission on the lines of “NRDC of China”.

Energy sector reforms: Earnest intentions for structural changes necessary – V

A Deputy Prime Minister must spearhead this organization, prioritizing regional cooperation, reducing circular debt and losses, merit order determination on capacity and fuel cost combined and ensuring peak demand shift by implementing energy conservation technologies deployed in households and commercial segments.

Additionally, this “NDRC’s” efforts must be aimed at increasing free float of state-owned enterprises to 75%, while limiting government equity to 30%, neutralizing subsidies and enhancing HR skill sets for power and gas operations in collaboration with MoFEPT (ministry of federal education and professional training) implementing an education roadmap utilizing 4.5% of GDP, and defining a technical roadmap utilizing 1.5% of GDP with MoS&T and HEC over a 20 year horizon.

Thirdly, MoE (ministry of energy) needs to define the energy roadmap for transmission, distribution and generation ($60-70bn foreign direct investment) based on the roadmap by IGCEP (indicative generation capacity expansion plan).

Energy sector reforms: Earnest intentions for structural changes necessary – IV

Execute plans for energy security, deliverance of reasonable cost of energy and scenario planned strategy resulting in implementation actions that expedite deregulation, help the country overcome its increasing import of energy, recovery of GIDC of Rs 445.6bn, taming over Rs 2.5 trillion circular debt and building confidence by reducing losses to below 12% (T&D) and 6.5% (UFG) by 2030, including ensuring timely/regular revision of tariff for utilities to receive full cost under a single slab for gas and power.

MoMA (ministry of maritime affairs)/MoI (ministry of industry) must define an implementation roadmap for exports, energy, and imports infrastructure to address the trade deficit since 2003. This comprehensive plan should span over a period of 30 years, aiming to surpass imports with exports and remittances by at least two-fold.

MoI’s responsibility lies in fostering an environment conducive for product development, cottage industries, and SMEs by promoting value addition and facilitating startup funding through domestic markets.

Energy sector reforms: Low-hanging fruit rotting – III

Ministries of Railways and Communications must also establish a 30-year roadmap for the energy supply chain with a view to reducing the annual $45bn subsidy through increased freight volumes, productivity, and post-harvest infrastructure development.

Fourthly, not only is building energy infrastructure of through inward FDI flows of USD 150bn plus quite astonishing, it also requires a deregulated market with strong independent regulator(s). This needs to come at the back of confidence-building measures and an acceptance that making profits is kosher and not all investments are from money laundered funds. Rebuilding of SOEs (state-owned enterprises) that control over 97% of the assets held by the 206 entities rather than initiating green field projects will reflect commitment to change.

Privatization success stories in banking and K-Electric’s Rs 474bn investment since 2005 and Rs. 484bn planned investment up to 2030 for the transmission and distribution segment for instance have been a game-changer in the power sector.

Energy sector reforms – II: low-hanging fruit rotting

Pakistan can catalyze change under a ‘3P’ implementation mode and associations representing trade and industry should be guided to undertake bankable feasibilities of projects for gas and fuel pipelines, refinery and petrochemical complex, oil and gas storage, oil city development at Gadani and Gwadar, logistics/supply chain and coal gasification with knowledgeable international consultants. Furthermore, privatization success stories should be celebrated and not demonized for being efficient.

And effective enforcement of laws will facilitate investment and this has to be encouraged by the federation providing continuity of policies, transparent procedures and contract award with changes effective prospectively and payments made as per contractual obligation. Power, Gas, E&P, Refinery, Deregulation and clarity on regulator’s policies/roles will limit enforcement authority to only when self-monitoring fails.

Staged and limited investment incentives, including reducing number of permissions required and encouraging new approaches without a regulator checklist selecting investors, will incentivize investors with definition of role of judiciary in commercial matters with a viable and timely contract dispute resolution mechanism, including process improvement, with no judicial activism as seen in the past.

Energy sector reforms — I

Furthermore, strengthening of defamation laws, discouraging media trials that are aimed at victimization and providing retribution for false cases will assist. Confidence-building measures and support for decision-makers willing to experiment are crucial for progress.

Unfortunately, the ongoing review of accountability law by the Supreme Court since August 2022, spanning over approximately 46 hearings, seems to have created uncertainty and diminished positive sentiments among decision-makers.

The fear of unfounded corruption allegations has hindered out-of-the-box approaches to energy procurement, impeding long-term contract agreements and the Reko Diq award has prompted the passage of the Foreign Investment (Promotion and Protection) Bill, 2022, underscoring the need for enhanced protection for foreign direct investment.

Given the importance of regional cooperation and trade, it is imperative to prioritize these aspects. In conclusion, a merit-based governance and justice system, along with a competitive business environment and limited government intervention, is indispensable for sustainable growth.

The current approach is inadequate, and a comprehensive overhaul can only be achieved through a strong parliament and a credible roadmap approved through bipartisan consensus.

Copyright Business Recorder, 2023

Sheikh Imran Ul Haque

The author has served as Managing Director of Pakistan State Oil (PSO) and CEO of EETL, EVTL, and ETPL. He can be contacted at [email protected]

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