Relying on ad-hoc planning and arrangements is detrimental to both the power sector and the national exchequer, and ultimately, it is the electricity consumers who bear the brunt of such inefficiencies through tariff differential.
Subsidies need to targeted for efficient deployment
Deregulation of energy (Generation, Transmission, Distribution and Retail) is essential and need of the hour as is building a strong regulatory environment including review of 18th amendment to ensure a competitive environment and ease of doing business.
- Rs 1190 bn for energy sector with AJ&K Rs 108bn, Rs 267 bn for inter disco and Rs 174bn for KE tariff differentials, Rs 48bn for PEPCO, Rs 500m for tubewells in Baluchistan, FATA Rs 86bn arrears and Rs 65bn and PEPCO Rs 18.4bn petroleum subsidies for shortfall in APL guaranteed throughput and domestic gas consumers
Other Subsidies
- PASCO Rs 12bn to maintain wheat reserves, USC Ramazan Package Rs 65bn Rs 75bn subsidy for GB wheat Rs 15.87bn, Urea import Rs 10bn, Kissan package Rs 5bn, Rs 3bn Islamabad metro bus
- Rs 1bn for Naya Pakistan Housing Authority, markup subsidies for Mera Pakistan Meragha Rs 21bn, Rs 14bn for phasing out SBP refinancing facilities
- Railways Rs 64bn and Rs 47bn grant to Sind Govt. to offset losses due to abolition of octroi and zila tax.
These amount to Rs 1363bn and are provided for in the budget. Ending zero rating for export industry reflects a positive paradigm change step.
Rebasing of electricity and initiation of measures of taxing the untaxed are welcome but offering export sector reduced Rs 10.5/kwh by removing Rs 240bn cross subsidy without performance targets, Rs 1500 bn salary increase, the hole of Rs 150-200bn per IMF, Rs 80-100bn due extension of tax exemptions to FATA/PATA, possible revisions by parliament in the Finance Bill without matching revenue provisions or expenditure cuts, is not a prudent approach.
These need to be plugged before the budget is approved.
Recent incident of FBR staff abuse in Lahore is reflective of a bigger malaise, repeated news of abuse of flying invoices, money laundering via import of Rs 69.5bn solar panels, customs and duty assessments and knowledge of over/under invoicing taking place reflective of revenue leakages.
Yet progress on digital exchange of trade data is moving on a snail pace and we need to focus urgently on undertaking the exercise with our 5 major trade partners this year (China, UAE, UK, USA, EU) and ensuring joint penalty and conviction of collusive violators- Exporters and Importers, FBR and Banks (not them alone).
But visible measures to set examples thru conviction are missing.
Consolidation of subsidy, targeted utilization with result directed performance has to be the norm in ensuring efficient use of funds to reduce poverty, increase skill development and raising our education and health services under a 3P program
BISP Rs 593 bn with children of recipients to be trained is positive and an out of box approach. There are many other schemes respectively, textile skill development program, interest free loans to farmers and for tractors, scholarship program, Apna Ghar, HEC, Kissan Package
Certified vocational skills development for export of qualified manpower and Testing to ensure merit based admissions and qualification upon graduation needs to be focus of spending by HEC, Provinces and Federal
Performance based subsidy has to become norm
Pakistan risk is only slightly higher than Somalia and Syria necessitating investor confidence building and essential to make available project finance.
Like an old record Punjab Government hopium is of setting up of solar panel assembly (not manufacturing) when China produces 750GW and will export 500 GW this year. How can one compete without a rent seeking business model?
Instead, required focus on inverters and lithium batteries should be by facilitating battery manufacturers.
Further more, facilitation for initiation of microchip verification, design and production, focus on product development and value addition by integrating technical and vocational institutes with SMEs under a High Tech & Product Tower instead of a Medical Tower. The NSIT Celestia Tower at CBD Punjab aims to be the hub for technology and innovation.
This be catalysed by consolidating Pakistan’s Skill Development Fund, Innovation Fund, National Economic Transformation Unit (Ministry of Planning, Development and Special Initiatives), Technology Development Fund (HEC) and Export Development Fund (EDF)
And NEPRA and OGRA be mandated to work out plans with ISGS, CPPA-G, NTDC and PSO to take measures to become significant in the Region as Regional Economic cooperation is the next frontier requiring review of our policies towards our neighbors and encouraging economic diplomacy to develop energy networks with Afghanistan, India, Iran, BD, China and be part of the evolving ME network on lines of networks existing in EU and Africa.
This is to be aimed at balancing export of surplus winter power capacity, building flexibility in import of oil and gas in winters and procurement of energy molecules directly from producers.
Let us start with focus on Central Asia and Gulf countries bilaterally to ensure our energy security thereby enabling us to deal with repercussions due to international events that are beyond our control.
Banks need fund only 30% of GOP debt vs outgoing fiscal year of ~55% and use balance to facilitate investors developing tourism (Rs 5bn for Green Tourism Company under SIFC should instead be shared with AKFED, travel industry to develop religious, health and Pakistan tours), new/expansion of existing businesses, micro enterprises and SMEs, cooperative producer societies who establish production units, develop housing in rural areas and off grid solar.
These banks should be conduit to harness likes of IFAD and National Poverty Graduation Programme to facilitate likes of Trust for Voluntary Organizations setup with USA to establish a special development fund to tap potential of NGOs
Agriculture Development Bank, First Women Bank should aggressively fund agri supply chain improvement and micro enterprises.
The plans of fast tracking solar deployment by the banks will get a fund boost by availing UN carbon credit facilities and developing carbon credit mechanism thru PMEX instead of providing subsidized financing, bill for which is still being paid.
In summary, only when we start to successfully demonstrate our commitment and intent to manage our deficit and debt, tax the untaxed (agriculture, property, retail and perks), reduce our subsidies and governance expenditure, plug the revenue leaks due custom assessment, flying invoices and under/over invoicing will build confidence in our intent to transform, execute structural changes and Rising Pakistan benefit from its moment of “crisis’ as it has been for others (e.g India and Bangladesh 1990s, Indonesia 1970s, China 1979) who built long term consensus around key features e.g. Commitment (Iran), Consistency and Persistence (Mauritius), Credibility Building (Singapore), Communication and Ownership (India), Reforms (Bangladesh).
By believing that Pakistan can be transformed by taking the required steps and measures will result in macro economic stability, reduction in interest rates that will create the fiscal space for improving the Human Development Index, reducing corporate tax (preferential rates for investment size and location, tax holiday for high tech enterprises or those operating in economic zones) and individual taxes including stimulating economy activity for growth.
Or will the future reflect status quo manifested by our inability to transform for the better. The choice is very much ours.
Till then the pain is severe and even morphine will not provide reprieve.
Author
Imran is an experienced professional who has held leadership positions in Pakistan State Oil (PSO) and Engro/Exxon Chemical, developed 210 MW plant using flared gas resulting in carbon credit, Pakistan’s first LNG import infrastructure in a record 300 days and recognized for strategic thinking, organizational transformation and professionalism.
He can be contacted at sihaque@gs-advisor.com