Situation
Budget estimates suggest 12% inflation, 14.3% investment to GDP expectation, $ parity target of Rs 295 (3.5%) vs 285 or 328.4 (~15% per IMF) and a budget of Rs 18,500 bn, tax target Rs. 12,970bn.
But achieving 7-9% GDP growth is not yet in the horizon. FY25 target of 3.6% is much better than contracted 0.2% in 2023 and 2.4% in 2024 but below our fertility rate of 2.55%.
We Need
Our economic turnaround moment necessitates a tax to GDP ratio of >15%, accepting our decades of mismanagement and taking control of situation by undertaking aggressively the reform battle.
This means urgent disruptive measures starting with transfer of responsibilities to Provinces, rebasing of electricity and ensuring semi annual adjustment in gas prices already required by law, taxing the untaxed, a home grown budget that targets reduction of Rs 9 tr interest payment and debt to provide space for improving our social indicators without blaming or hiding behind IMF diktat/harsh conditions.
Turnaround requires time, patience, and endurance with no hopium narrative and deregulation of energy (Generation, Transmission, Distribution and Retail) essential, building a strong regulatory environment and review of 18th amendment for developing a competitive environment with each provincial pricing uniformity restricted for 2 years to allow working out the challenges in way of expeditious implementation.
SOE (Governance and Operations) Act 2023 and now Amendment Ordinance 2024 is reflective of inability (despite knowing the need, criticality and yearly burden) to undertake reforms across the board.
A game changer solution requires building on privatization success stories in banking and of K-Electric with a structural change that necessitates reviving PIDC to undertake disruptive measures and catalyse SOEs disinvestment over a 4 year time period and under P3 mode.
PIDC having an independent Board of local and external professionals only, Chairman with strong experience and academic credentials with rank of Deputy Prime Minister/Senior Minister reporting to PM and operating on lines of Saudi Arabia’s Public Investment Fund, Qatar’s Investment Authority, Emirates and Abu Dhabi Investment Authority, Norway Wealth Fund etc. is a must.
The Board and its decisions are to be protected under Foreign Investment (Promotion and Protection) Bill, 2022. Barrick request for confirmation by Parliament and SC of its agreement highlighted concerns that needed mitigation.
GOP share holding of 207 SOEs be placed under PIDC (without debate of strategic and non strategic) vertical holding companies e.g Industry; E&P and Gas; OMC, Refinery, Fertilizer; Coal and Mineral; Power Generation, DISCOs and Transmission; Media and Communication; Logistics, Supply Chain, Services; Engineering, Conservation, Urban and Rural Development; Pension, Wealth and Development Fund.
The proposition is enabling PIDC to manage commercial assets, consolidation of government shareholding, undertaking aggressive transformation, consolidation of roles, reduction and merger of departments/ companies.
Additionally, introducing products and services into local and international market by aggressive development and improvements to existing ones by collaboration of engineering industry under a revitalized EDB rebranded as Innovation and Technology Development under NEECA , vocational institutes and building on strengths of defence production industry to increase engineering goods exports .
77 years later, Pakistan’s electricity sector is still primarily state- owned single buyer monopoly, continuing with self created circular debt issues, lacking competitive generation with uncontrollable losses and constraints in the transmission and distribution of energy.
We cannot continue our hopium narrative but instead need to dismantle status quo, not protect elites nor allow institutions to default on their liability. Therefore overdue focus on governance, enforcing writ, taking revenue increase measures starts with DISCO operations.
We need to learn from success of a vertical utility after 15 years of focus, spines of steel and team commitment to achieve over 50% reduction in T&D losses (34.2 to 15.8% over past 17 years; 2030 target of 12.8%), delivering reliable power, improvements in customer service, transformed KE willing to compete in the distribution segment (unbundled license approved by NEPRA) and vision to achieve 30% generation (~1182 MWs) by 2030 through investment in renewables (Rs. 484bn).
GOP instead continues changing approach from privatization, management control, transfer to provinces, delaying governance improvement and NEPRA facilitating violation from its own approved operational benchmarks.
The in the box solution requires provincialism of DISCOs under a 3P between province, federal government and IPPs of the DISCO franchise area be implemented with majority equity held by the IPP and public, 25% free float but at no time is GOP/Provincial share to exceed 30% requires serious consideration.
For provincial network efficiency due to increasing induction of Renewable Energy Power Plants, “ERCOT” equivalent independent system operator working with other provincial entities to improve reliability of the bulk power grid, performs financial settlements for the competitive wholesale bulk-power market (draft agreement under review by NEPRA ) and administers retail switching premises in competitive choice areas is considered a necessary extension to Competitive Trading Bilateral Contract Market undergoing proof of concept.
Campaign against power and gas theft commenced and it was hoped that it would continue its focus on protected defaulters facilitated by DISCO insiders, with punitive measures of suspending CNIC, Passport, Business Registration, declaring them defaulters under Revenue and marking them as non filer would be taken.
The campaign is apparently stalled as seemingly will to reform and take tough measures continues to be missing and instead it is easy to resort to 4232MW of Aggregate Technical and Commercial Loss-based Load-Shedding on feeders with 20-80% losses (~28% of 8600 feeders).
These feeders should be shifted to solar.
Sind Government initial plan on incentivizing with a Rs 5bn package (200k panels at 20% cost) should only target revenue based load shedding areas in 700 feeders of HESCO, KE and SEPCO would have dual benefit- provision of off grid power and coagulation.
Other provinces could also consider a similar approach and their Provincial Grid Companies (transmission licence granted to KP, Sindh and Punjab) must step up, actively participate and be encouraged to develop Micro and Mini Grids as large areas in Balochistan, Khyber Pakhtunkhwa, and Sindh accounting for approximately 26% of the country’s population still lack access to the National Grid.
With the decreasing costs of RE, decentralized energy generation has become increasingly viable to meet the demand of areas without access to the National Grid which predominantly has relied on large power plants and extensive transmission lines due to the geographical separation of generation resources like natural gas and water from load centers.
We need not be apologetic on 14% LPS on prorate basis for defaulters; it should be APR of 39% in line with credit cards rates and there be no need for approvals.
Losses increase in summers and low income, small offenders and protected consumers should be billed a flat rate with difference adjusted in the 4-6 months of spring and autumn, thereby assisting consumers to manage their cash flow, improving recovery and limiting need for installments.
Total number of electricity consumers nationwide total 38,249,950 (34,684,149 for ten DISCOs and 3,565,801 for KE) with 1,654,824 new consumers integrated into the network during the FY 2022-23.
But 7% customers, often referred to as high-end domestic (unprotected) —pay full tariffs (Rs 27.14/42.72 per kwhr for 200/>700 units for protected) and account for 27% of around 56,000 GWH of total domestic consumption.
Around 68 percent of domestic consumers consuming < 200 kWh per month consistently for the past 6 month fall under the protected category with two rates for 100 and 200 units (Tariff Rs 10.06/22.95 per kwhr)
Another 25 percent are lifeline consumers (Tariff Rs 3.95/7.74 per kwhr) having maximum of last twelve months and current month’s consumption ~100 units with two rates for~50 and 100 units).
Together they account for 73 percent of domestic power consumption. We should only provide subsidy to the 9.6-9.7m BISP beneficiaries.
The overall size of FY25 power sector subsidy is suggested at Rs 1.094 tr (Rs 970 bn last year and demand of Rs 1250 tr) with rebasing impact under evaluation.
Power tariff-related subsidy is expected to be Rs 681 bn
Additionally Rs 471bn is thru BISP and ~$18bn in annual subsidies s being received by ruling elite (predominantly individuals with feudal backgrounds) per UNDP’s NHDR April 2021 report.
How do we reduce or withdraw these unbearable subsidies and tie them to performance benchmarks for ensuring accountability is a question for our experts?