A report prepared by Sustainable Development Policy Institute has revealed that out of 18 ongoing hydro power projects, the government has completed only one. Fifteen of these were scheduled to be completed in 2007, before the incumbent government took over the reins of control, and three in June of last year.
The Federal Ministry for Water and Power may be tempted to lay the blame for the delay on the previous government by pointing out correctly that 15 run of the river projects were delayed during Musharraf's watch and that all subsequent delays can be attributed to the fact that the General's government left the economy in shambles, due to its disastrous policy of maintaining the domestic price of oil and products at a time when their international price was skyrocketing. These are certainly relevant factors however nearly three years down the line, the incumbent government can no longer absolve itself of the responsibility for continued heavy loadshedding as well as the steady escalation in the price of energy.
The single most critical factor that is held to be responsible for poor domestic output is the energy shortage. This, in turn, is compromising the government's ability to raise its collections from taxes levied in the value added mode, inclusive of sales tax and excise duty. High energy costs, passed on to the consumers are fuelling inflationary pressures. Without ensuring uninterrupted energy supply to the industry, the government cannot possibly hope to increase the Gross Domestic Product growth rate or indeed facilitate competition of Pakistani exports with those of our competitors, particularly India.
At the same time, the government has witnessed considerable household discontent with respect to its continued failure to meet the demand for electricity and gas. Added to this is the general perception that the Stand-By Arrangement (SBA) that the government signed with the International Monetary Fund (IMF) (envisaging a rising monthly energy bill during the rest of the current financial year, as subsidies are eliminated, coupled with gas and loadshedding) was injudicious.
As if these issues that plagued our energy sector were not a cause of major across-the-board discontent, the government added insult to injury by supporting expensive rental power projects (RPPs), in spite of a third party audit that noted three disturbing elements: (i) the original RPPs were based on advance payment of seven percent, but the post-bid addition of standby letters of credit changed the financial situation in favour of the RPPs. Had the revised arrangements been taken to the market, the government would have gotten better terms; (ii) acceptance of unsolicited bids, diluted the transparency, competition and equal treatment that an international competitive bidding process is intended to ensure.
This was especially relevant with respect to the RPPs based on gas, as the allocation of gas is controlled and regulated by the government. If gas was available, it should have been transparently included in invitations under the bidding process. There is one unsolicited gas plant which has become effective; (iii) 2,000MW of electricity could have been utilised from within the existing system through full-capacity utilisation (of 997MW closed plants) and energy conservation measures (1,300MW). The third party audit recommended that there is a need to take an integrated look at the energy sector, given that the crisis is largely a fuel crisis caused by unexpected and unmitigated increase in furnace oil prices as well as delays in finding a substitute for depleting domestic gas supplies, as the gas shortage increased the cost of power and lowered efficiency and capacity for plants designed to run on gas.
There is no doubt that the country's finances continue to be in bad shape and the Ministry of Finance has been compelled to slash development expenditure by 50 percent; talk of the need to slash it by 75 percent is gathering momentum. This would, of course, have impacted on the annual development expenditure of the Ministry of Water and Power and may well account for the delay in the 17 run of the water projects. Be that as it may, one would have hoped that the Minister of Water and Power had been able to convince the rest of his Cabinet colleagues of the need to ensure that all development projects related to his ministry were completed.
Instead Raja Parvez Ashraf focused on supporting the controversial RPPs and to the dismay of the general public, succeeded. This success would imply higher tariffs for the Pakistani consumer. The third party audit report maintains that a rental tariff of 11 of the 14 contracted RPPs ranged between 18 and 22.24 cents per unit, and one each of 15.60 cents, 9.5 cents and 8.5 cents per unit, statistics that are unacceptable to a citizenry overburdened with taxes and high prices.