Hopium – II

Energy pricing fortnightly (fuel, LPG and LNG), monthly (power) and 6 monthly (gas) needs an approach that smoothens the impact and reduces the risk without causing political despair every fortnight, every month, and every 6 months. Review of tariff adjustments by BR highlights that it is manageable.

Starting July 2024, rationalisation of tariff with a reduction in GoP intervention necessitates empowering gas and power regulators, Ogra and Nepra, respectively, and providing indigenous gas only to power plants and fertilizer. Any leftover molecules are to be “stored” by reducing production at field level.

Captive power plants, 3 RLNG units, fertilizer and all of industry to utilize RLNG/LPG/LPG Air Mix phased in by 2027. The case for fuel pricing based on futures with role of PMEX should be defined and implemented by a combined regulator.

In parallel, the regulators with CPPA-G, DISCOs and Sui companies should determine timelines for power and gas sector loss reduction (losses 15%, recovery 95% target and UFG 5% target). And the case for reducing circular debt by investing in afore-stated and increasing royalties on oil/gas, windfall levy against crude oil, levy on LPG/petroleum and GIDC should be implemented over the next 5-year span.

FIPPA (freedom of information and protection of privacy act) applicability to investments in ambitious projects, e.g., TAPI, Reko Diq, Refinery, Petrochemical, CASA 1000, etc., by the concerned Ministry without approval by cabinet, deregulation of sector combined with the wealth fund will encourage PSO, OGDCL, PPL, Utilities and DISCOs to partner with qualified and experienced partners.

No longer hopium should be the norm as has been repeated daily by various stakeholders in the last 75 years, as we side-step logic and reasoning by pursuing reflex mode instead of a data-driven decision-making, which encourages our 4rth world journey instead of becoming like those who cannot learn, unlearn and relearn.

Pakistan’s current economic model is not working since it has fallen behind its peers’, significant progress in poverty reduction has now started to reverse, and the benefits of growth have accrued to a narrow elite, observes the World Bank Country Director.

Stakeholders need to coordinate and move beyond point-scoring, not be economical with truth, communicate way forward the plan and pain while implementing solutions to our next decade challenges where norm is ‘Pakistan First’. The Caretakers have shown how it can be done.

Our political manifestos should focus on that instead of building the usual hopium, given that Pakistan requires a sustained GDP growth of 7-9% for 30 years, increase focus on reducing fertility rate and citizens deserve minimum standard of living with universal/minimum pay at Rs 75000 per month today with revision per inflation every July.

Focused subsidy with matching funding can deliver free units of electricity, health facilities, houses to homeless, Youth and Kissan cards, hunger eradication and quality education but is old wine in new bottles without challenging the status quo and highlighting the revenue measures.

How will there be improvement in productivity is the elephant in the room?

The next decade requires Tough Choices, Disruptive Inspiration and No Business as Usual: This necessitates a credible structural reform package, a conducive investment environment, encouraging regional trade, changing state of patronage and taking decisions by allowing professionals to undertake their job diligently as they tackle scenarios that evolve and be able to modify the path accordingly without repercussions.

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 obligations met per contractual obligations.

Deregulation and competitive environment requires stringent regulator policies/roles providing enforcement authority only when self-monitoring fails: Staged and limited investment incentives including reduction in number of permissions required and encouraging new approaches without regulator checklist selecting investors.

Conducive business environment provided by a tolerant society including definition of role of judiciary in commercial matters with a viable and timely contract dispute resolution mechanism with no judicial activism as has seen in the past that does not cancel contracts but rather ensures an effective contract arbitration process.

Finally, strengthening of defamation laws, discouraging media trials aimed at victimization and providing retribution for false cases.

Given increasing interdependency, Pakistan’s most disruptive paradigm change requires effective integrated planning necessitating a Planning Commission working as “Pakistan NDRC” on lines of National Development and Reform Commission (NDRC) of China, defining institutional parameters and boundaries for growth based on guidance of Special Investment Facilitation Council (SIFC) acting as “Board of Directors”.

This challenge to status quo requires consolidation of Commerce, Industry, Exports and BOI, Privatization, ii) Maritime Affairs, Railways and Communication, iii) Science, Technology, IT and Education, iv) Energy and v) Agriculture under Planning Commission led by a professional Deputy Prime Minister/Senior Minister and assisted by experts, think tanks and financing institutions to evolve a home grown executable strategy.

Next disruptive measure recommended earlier and again now is revival of PIDC (Pakistan Industrial Development Corporation) as a holding company to manage federal and provincial Governments’ shareholding in State-Owned Enterprises (SOEs), followed by their aggressive transformation, consolidation of roles, reduction/merger of departments/ companies, encouraging new opportunities for export, partnering with defence industry, focusing on regional cooperation and undertaking strategic infrastructure investments.

SOEs “Employment Exchange” role needs to end as federal SOEs are the least profitable in the region with subsidies, loans, equity injections is 1.4 % of GDP with stock of guarantees and loans of 3.1% in 2016 and 9.7% during 2016-21.

With legislation in place and review aimed at rationalizing and strengthening the SOEs’ policy and oversight being undertaken, the goal now has to be consistency and confidence-building through measures that ensure ease of doing business, encouraging FDI under 3P while restructuring SOEs assets/debts.

PIDC is thus necessary and rebuilding of 206 SOEs instead of initiating green field projects is more cost effective and reflects commitment to change. PIDC would have the role of wealth fund as well and is to be a corporate holding company structure.

PIDC also requires like CPEC (China Pakistan Economic Corridor) Authority’s chairman and other officials immunity from investigations by NAB (National Accountability Bureau) and FIA (Federal Investigation Agency) and SOEs involved in Reko Diq copper and gold project being entitled to indemnification in case of losses, administrative and legal matters.

This disruptive measure is essential, given our history of privatisation and efforts for reorganizing and transforming SOEs has had limited success and execution will happen only with an experienced technocrat Board and Chairman designated as Deputy Prime Minister/Senior Minister.

Instead of a big bang approach, sustained efforts by an effective empowered leadership team are required to manage the SOEs based on principle of working for profit and are not to be bailed out beyond 3 years. Message: If unable to reduce the number of institutions: merge them, corporatize them and force them to be financially self-reliant, productive and competitive.

“Functional divisions” of PIDC are to be managed by a qualified CEO with powers of board of directors. Divisions would be a corporate structure and could be industry, engineering, and energy, including E&Ps (oil and natural gas industry), IPPs (Independent Power Producers), and commodities, etc. These individual subsidiaries would be listed and GOP shareholding would be reduced overtime by bringing in equity partners.

Copyright Business Recorder, 2024