Pakistan: Loadshedding has no solution?

It was reported in a Business Recorder exclusive that the Ministry of Finance has decided to release 5 billion rupees instead of the 22.5 billion rupees that the caretaker Federal Minister for Water and Power Dr Musaddaq Malik claimed had been agreed with the Ministry of Finance. Dr Malik in a press conference further revealed that the decision to release 15 billion rupees to be utilised by Pakistan State Oil to procure fuel and the remaining 7.5 billion rupees to generate additional power was approved by the country's chief executive namely caretaker Prime Minister Khoso. An amount of 42 billion rupees, Dr Mailk added, had also been sanctioned by Khoso for June, a period when the caretakers would no longer be in power. It is extremely disheartening that four days later, Dr Musaddaq Malik in another press conference stated that until and unless the Ministry of Finance releases 17.5 billion rupees immediately, as agreed, loadshedding will continue at the same level which, with temperatures soaring, has begun to claim lives throughout the country. And the caretaker minister acknowledged that his own ministry is understating the demand position and thereby understating the demand-supply gap. It is by now evident that the caretaker cabinet is not on the same page on this critical issue that continues to compromise not only the country's ability to operate at optimum productivity levels but is also a source of considerable anger for the general public. In all fairness though the 5 billion rupee figure indicates the pressure on the Ministry of Finance to contain the budget deficit, a prerequisite to assuring bilateral and multilateral donors that the country is embarked on meaningful reforms that would create fiscal space necessary to positively impact on all the key macroeconomic indicators including inflation; while the 22.5 billion rupee amount indicates the Water and Power Ministry's focus on reducing loadshedding to a level whereby the productive sectors can be enabled to become the engines of growth of the economy and to stop the domestic sector's angry demonstrations against heavy loadshedding given the current high temperatures. This is indeed a Catch-22 situation which unfortunately is further complicated by allegations of a 'mafia' operating within the Water and Power Ministry by the caretaker Federal Minister leading him to publicly maintain that the energy crisis is structured by the unscrupulous rather than structural which would require some major reforms by the several power sub-sectors. Dr Malik's revelation that a random check carried out by him in Sialkot and Gujranwala led him to become aware that the entire distribution system of these cities was shut down is truly mind-boggling. The problem of circular debt that the PPP-led coalition government could not resolve during its five-year rule is also one that cannot be overcome in a matter of weeks or even months, the duration of the current caretaker set-up. And last but not least, as the Water and Power Minister revealed in his press conference Qadirpur gas field due to annual turnaround is unable to release 150 mmcfd to the power sector and therefore the country is being deprived of 800MW. At the same time one cannot possibly minimise the impact of higher than budgeted allocations to the power sector - set at 185 billion rupees in budget 2012-13 and revised upward to 291 billion rupees. Sources indicate that if the 5 billion rupee is added to the total subsidies received by the power sector the actual total would rise to 320 billion rupees - money that the Treasury simply does not have. In short, the government maybe forced to print money, a decision that even Dr Malik acknowledges is not a solution as extending subsidies to the power sector is tantamount to throwing good money after bad. So what is the solution? The Law Ministry has vetted a Presidential Ordinance that seeks to enhance tax collections through the imposition of higher taxes including sales tax, income tax, withholding tax, federal excise duty and customs duty. Or in other words, higher tax collections would no doubt enable the Ministry of Finance to release a higher amount to the power sector as a subsidy with the budget deficit remaining unchanged. The Ordinance reportedly has the support of the government-elect; however Raza Rabbani, a ferociously independent PPP mind, has indicated that his party would oppose the passage of the Ordinance during the tenure of the caretakers as it is violative of the 18th Constitutional Amendment - a stance that is opposed by several constitutional experts. Be that as it may, it appears that the President has stayed his hand and not yet affixed the necessary signature on the ordinance and each day's delay is reducing its overall impact on revenue collection as well as on the budget deficit. A preferred solution is to reform both the power sector as well as the tax structure whereby subsidies to the former would decline while higher tax collections through enhanced documentation would reduce the budget deficit. This approach has been supported by multilateral and bilateral donors who argue that improved governance in the two sectors is necessary to enable Pakistan to come out of the existing economic quagmire. With respect to the power sector, donors suggest some unpopular decisions including payment of arrears at source by the Ministry of Finance for public sector entities and disconnecting private sector connections for unpaid bills, reducing transmission losses to the acceptable 2.5 percent level instead of the current 3.6 percent, targeting power subsidies to only the very poor, rationalisation of existing staff in the power sector and rationalising and subsequently eliminating the circular debt. A tough call but someone has to do it and that someone must be the elected representatives of the people not a caretaker set-up without a mandate from the people of this country.