111 510 510 libonline@riphah.edu.pk Contact

PTI govt’s 100-day plan: The clock is ticking – IV

Economic Advisory Council reporting to the prime minister and ministerial advisory councils are functional while the government is in the process of setting up a business advisory council to establish a liaison between government and trade and industry and investors. In the meantime, PM Imran Khan conducted an unprecedented number of cabinet meetings in such a short time, took briefings from advisors on burning economic issues. The armed forces and ISI briefed the PM on security matters. The foreign ministry briefed him on country’s foreign policy. In a nutshell, much has been achieved.

In other words, the government has amply demonstrated that it means business and will always pursue its objectives with utmost seriousness. The critical issue at this point in time, however, is the state of country’s economy. Pakistan Stock Exchange – the pulse of the economy – was bullish at the start of this government’s tenure but it is now bearish. The rupee which earlier showed resilience against the US dollar declined later. There is nervousness and uncertainty in the market.

The public expectations are plausibly high as people believe that all issues will be resolved or at least meaningfully addressed in the first 100 days of the PTI government. The government would have done itself a great service had it made transparent the scorecard of the previous government as a point of reference and clearly spelled out its time-lines for moving from negative to positive territories. It also ought to have taken people into confidence about the pain they will experience during this transition.

Time is of essence. While the government is debating the option of the IMF and its many advisory councils are preparing strategies and studies, it should start dealing with issues which are known and bleeding the state economy. At the end of the day, what is done on ground will count, not the volumes of studies. This writer seeks to highlight the well identified key issues which are major deterrent to state economy and their short-term solutions.

The foremost is the power sector and the mounting circular debt emerging from it. Circular debt is more of a governance issue than the financial one. In spite of repeated pay-offs in billions over many years it bounces back with more intensity because the core issues, which are embedded in governance complexity, are not addressed. Today its total implications are bleeding the state economy by over Rs 1.3 trillion. There are some actions which can be straight away rolled out and implemented on ground. These include:

1. Audit Fuel Supply Chain

Appoint technical & financial auditors/advisors to conduct audit of fuel supply chain (oil, gas, LNG and coal) and the conduct of fuel distribution and marketing SOEs (PSO, SSGC, SNGPL, etc).

2. Audit Independent Power Producers (IPPs)

Appoint technical and financial auditors/advisors to conduct audit of IPPs with TORs specific to fuel costs (Passover by IPP to government), idle capacity and power supply to grid billing by IPPs to the government and similar payments to IPPs by the government.

3. Audit Gencos

Appoint technical and financial auditors/advisors to conduct the audit of Gencos with TORs specific to plant aging, fuel efficiency, electricity delivery efficiency, plant efficiency restoration options and similar.

4. Audit Discos

As above with TOR specific to Receivables Gap Analyses, Commercial & Technical Line Losses, and Consumer analysis and similar.

5. Nepra and Ogra

Restore the constitutional status of Nepra and Ogra as independent regulators.

6. Change Management

Replace company boards and principle management at Gencos and Discos with merit-based professionals.

Also, associated to it is the issue of ‘Availability and Affordability of Power’.

In spite of adding more power to the grid by installing power plants, primarily based on LNG and Coal, load shedding persists and the new fuel mix has escalated the tariffs for consumers instead of reducing these as perceived.

Consumers increasingly find the electricity tariffs unaffordable, specially the industry, which has become un-competitive for domestic market and exports. The electricity tariff in Pakistan is 11cents, in India 9 cents, in China 8.3 cents & Vietnam 7 cents.

Pakistan now has surplus installed power capacity but is constrained to position it on grid on account of financial crunch arising out of circular debt and power transmission and distribution limitations. Also, many plants largely based on HSD are no longer viable while the government continues to pay oil pass through and idle capacity charges.

The role of Nepra as a regulator has been compromised while PPIB is much obsolete to manage the interests of private sector. The way forward is to cease further investments in Thermal Power Plants based on imported fuels and just optimize and rationalize the power output from the existing ones in the private and public sectors.

Future focus should be on indigenous and environment-compliant fuelled hydropower, wind and solar power with base load based on nuclear power plants.

The recommended action plan on account of availability and affordability of power is:

1. Thermal Power Plants (TPPs)

Retire or refurbish in-efficient TPPs, rationalize fuel supply chain and optimize uptime of efficient power plant.

2. Hydropower Plants (HPPs)

Position all small, medium and mega HPPs in the pipeline on fast-track completion mode and plan new short-, medium- and long-term HPPs.

3. Renewable Energy (RE)

Position wind, solar and biomass/biogas power plants in the pipeline on fast track completion mode and plan new short-, medium- and long-term RE plants.

4. Nuclear Power Plants (NPPs)

Position NPPs in the pipeline on fast track completion mode and plan new short-, medium- and long-term NPPs.

5. Power Islands (PIs)

Maximize standalone/captive power generation and distribution set up for the gated residential, commercial, agriculture and industrial estates through private sector and/or Public-Private Partnership.

6. Power T&D Network

Restructure & upgrade technology-driven power transmission and distribution network to manage additional power evacuation and limit line losses and power theft.

7. Nepra and PPIB

Restructure Nepra to truly balance the interests of consumers and power producers and restructure PPIB to mobilize the private investments in the power sector.

8. Change Management

Replace company boards and principal management in all relevant entities with merit-based professionals.

There are ample areas where the incumbent government can straight away move into the implementation mode and bring about delivery on ground.

Farhat Ali, "PTI govt’s 100-day plan: The clock is ticking – IV," Business Recorder. 2018-09-15.
Keywords: Economics , Economic Advisory Council , Thermal power plants , Foreign policy , Government trade , Government investor , Stock exchange , Solar power , Public sectors , Completion mode , Electricity tariff , PPIB , HSD , PTI