Change is taking place slowly and subtly. Recent Cabinet Committee on Economic Reforms’ (CCER’s) deliberations on Sept 25, 2023 highlight increasing interdependency, thereby necessitating a Planning Commission on the lines of “NRDC (National Development and Reform Commission of China)” advocated in previous articles.
This role is now being undertaken by apex, executive and implementation committees of Special Investment Facilitation Council (SIFC) chaired by Prime Minister, Planning Minister and SAPM, respectively.
Additional Secretary, BoI (Board of Investment), as Secretary Executive and Implementation Committees and SAPM to the Apex Committee intends to improve coordination. Sectoral divisions (relevant fields) include Defence, Information Technology & Telecommunication, Mineral, Energy, and Agriculture.
A disruptive measure to expedite Implementation, in an opinion shared earlier, requires consideration for revival of “PIDC” to manage commercial assets and hold government equity in SOEs (state-owned enterprises), rebuild them by aggressive transformation, roles consolidation and undertaking strategic investments (e.g., to lower losses, pursue regional and local infrastructure investments, partnering with defence industry energy conservation- focus on efficient electrical equipment with Engineering Development Board, Pakistan Engineering Council, Institute of Engineers, National Energy Efficiency & Conservation Authority).
Cabinet Committee of SOEs, Central/Project Monitoring Unit’s role to ensure that business plans of SOEs are in line with priorities of relevant field of energy is also best handled by ”PIDC” including Regional Cooperation, a long-term road map definition, improving ease of doing business by “one-window” operation resulting in timely decision-making to fast-track investments and implementation.
Final draft of State-Owned Enterprises Policy 2023 will be presented to Cabinet for endorsement. The first tests for enforcement of this policy designed to arrest the PKR 458 billion annual drain on the exchequer would be PIA’s sell-off, Disco transaction, G2G sale of PSM and sale of Reko Diq shares by GOP entities.
Instead of a big bang approach, sustained efforts by an empowered leadership team are required to manage the SOEs, reduce the number of departments, autonomous bodies and companies while undertaking privatisation. A clear message to SOEs should be: become financially self-reliant, work to deliver profit and that there will be no bailouts beyond 3 years.
In parallel, merge and sell them under 3P/G2G, leasing out for 30 years by creating vertically integrated DISCOs requires an inside the box consideration but priority must be to deregulate the energy sector.
Rs 150 billion is the Power Division recovery target in next 5 months but focus needs to be also on GOP entities that have defaulted. Transparency of data by Secretary Power and access to such data (for a fee) needs to be provided.
The circular debt of energy sector requires pricing measures, timely collections and spot buying of LNG do not help the cause. E&P sector is gearing up slowly and Pakistan Petroleum Exploration and Production Companies’ cash constraints are impacting seismic, exploration and development activities.
Net metering needs continued encouragement and could overcome delays of the 600MW solar project with a holistic roadmap that takes into account evolving power system needs and prioritizes affordability, reliability sustainability and customer focus.
Long-awaited crackdown on illegal immigrants (3m) is planned to start in November. We also need to close the chapter on 1.2m refugees as Afghanistan is no longer at war and they need to return to their independent country; alternate approaches of an “iqama” or citizenship process need evaluation.
It is hoped that this assists in improving the investment climate and $49.2m repatriation of profit in July-Aug this year vs $ 28.2m last year during same period is positive but $1-2bn still is pending as per Bloomberg.
A suggestion of Pakistan Business Council (PBC) in 2020 on placing qualitative and quantitative limits on Afghan Trade (increased to $ 6.71 billion from $2.5 billion in one year) requires diligent evaluation and first steps have been taken to ban 212 luxury goods, with imposition of 10% processing fee on transit trade and bank guarantee.
There is need to plug leakages, including action against solar equipment importers for Rs 38 billion over-invoicing. But the bigger measure necessary is of under-invoicing detected due to the disparity in 2022 alone of $ 7.5 billion in export value reported by China, Singapore, Germany and the UK and the import value as reported by Pakistan Customs to International Trade Centre.
Due to increase in tax collection of Rs 64 billion against the quarterly target (FBR 24% with inflation at 28% and SRB recording +40% increase) and administrative measures to end speculation in FX (interbank down Rs 24 to $), expectations are high that economic revival plan and prudent actions will now provide some growth in FY 2024 and further, in the medium term. The role of exchange companies should be limited to tourists only with banks dealing with rest.
End August central debt of Rs 63,996 billion is ominous and there is Rs 1 trillion fall in cash holding to Rs 8.3 trillion during last 3 months. Over the last five years, approximately Rs 15 trillion of new money was created.
Of this, roughly 80% of the money created is attributable to the GOP needs and around Rs 4 trillion out of the Rs 12 trillion is attributable to interest, or government borrowing (additional money creation) has ended up being 25% higher owing to the interest paid. This adds further to inflationary pressures.
Much-needed measures for documenting the economy await promulgation of an ordinance for integration of data across all tiers of government. And austerity measures by Cabinet Committee on Economic Revival (CCER) being considered, (Single Treasury Account Rs 424 billion, 10% reduction in FY22 Federal Government of Rs 54 billion in six months, devolved ministries Rs 328bn, devolution of HEC Rs 70 billion and sharing of BISP Rs 217 billion with the provinces, MoF review of tax exemptions (3 major taxes to tune of Rs 1.3 trillio, subsidies, grants) constitute a positive step.
Removal of barriers to a visible conducive business environment requires an abandonment of judicial activism that cancels contracts. Our judicial system ensure an effective contract arbitration process. Rs 3trillion stuck in different legal forums requires devising Alternate Dispute Resolution mechanism for resolution and needs to start by removing operational barriers. Furthermore, results, subsequent to deliberations of CJSC with lawyers and bar associations, are eagerly awaited.
It is critical that we urgently now evolve a regional economic cooperation view initially for energy trade to be expanded to other sectors later. The regional railway network with planned ML-1 needs to be consolidated and expanded to also cater for fuel cargoes.
Further consideration is required for refined fuel to be imported from China via Khunjerab Pass for export to Afghanistan, gas imports from Turkiye via Iran and Turkmenistan through Afghanistan, electricity import from Kyrgyzstan, Tajikistan and Iran, including provision to export electricity from Gwadar and utilizing installed generation capacity as part of undertaking energy trade and building storage and delivery infrastructure.
Capacity to handle MOGAS, LPG, LNG and HSD by using in-country engineering expertise to modify existing fuel oil tankers and build new ones at HMC/Moghulpura will give impetus to self-reliance. This may eventually lead to a gas liquefaction facility in Gwadar.
Two indices for gas trading at Multan and Quetta would need to evolve with PMEX being the preferred forum for energy trade.
(To be continued)
(The writer has served as Managing Director of Pakistan State Oil (PSO) and CEO of EETL, EVTL, and ETPL. He can be contacted at [email protected])
Copyright Business Recorder, 2023
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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