The tallest claim in terms of deliverance this government makes is much improved electricity supply. And there is no denying that. The power supply has definitely improved, and most industries face zero load shedding, compared to 6-8 hours of power closure when they assumed office. The situation in the domestic sector has also considerably improved. Kudos for that.
Recall that the government’s power sector reforms were aimed at energy security and affordability. Almost five years down the road, it could only claim to have achieved energy availability – without being secured or affordable. Little wonder that the beast that the circular debt is back on its feet. Scarier, mightier and bigger.
It never went away. It was just brushed under the carpet and never nipped. It was always going to be when and not if, when the circular debt gets ugly. That is because the illness was not treated for the root cause. The pain killer injection worth Rs480 billion kept it going for two years, and the root causes remained largely untouched. And here we are, back with an outstanding circular debt toll in excess of Rs500 billion and that excludes Rs400 billion already parked in the Power Holding Private Limited.
The Economic Coordination Committee (ECC) has reportedly finalized the plan to partially clear the dues to the tune of Rs80 billion to keep the ship afloat. The instruments include loans from commercial bank, treating the accumulated amount as equity in DISCOs, TFCs and more. This may offer a breather to keep the turbines running come peak summers.
And unsurprisingly, reforms will again take a backseat. Ad hoc measures have not worked in the past, and will not work in the future. Surely, this is no time for the government to initiate structural reforms so close to the elections, when they could not achieve it in almost five years.
And all this has happened, when power sector subsidies have been rightly brought down considerably to a mere 0.3 percent of GDP, from as high as 1.2 percent of GDP in 2013. Tariff rationalization is a vital, but only one of many reforms that needed to be taken. All this while, generation capacity and supply both have increased – without a telling improvement in DISCOs’ losses and recovery.
This is where it gets worse, as the distribution companies continue to significantly underperform the allowed benchmarks set by the regulator. In percentage terms, there has only been a slight improvement, but in absolute dollar terms, losses have increased. Delays in tariff determination, and in some cases, non-realization of subsidies have also contributed to the mess.
Does Pakistan have the fiscal space to clear such a huge chunk in a go? It does not. But partially clearing to the tune of Rs80 billion should not be a problem, when the idea is to recover the interest charges from the end consumer and to pass the buck to whoever takes office next. There is enough literature on what needs to be done to nip the circular debt menace once and for all. Privatization of distribution companies is one key step, without which, eliminating circular debt would remain an elusive dream.
It is too early to call who wins the next elections. If the incumbents get reelected, they may opt for privatization early in the office, especially with a likely IMF programme by the time. If it is either of the other two major parties, privatization may not even be in their plans. And don’t forget, Pakistan would likely be sitting with surplus generation capacity and most likely, higher losses. Shudder.
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