The PPP government is caught with its pants down on the way it handled the RPPs; but anyone coming in its wake will have to take the tough decisions

Analysis By Khaled Ahmed

The judgement reserved by the Supreme Court on the Independent Power Producers case on 14 December 2011 was announced on 31 March 2012, saying that all the rental power projects (RPPs) should be dissolved. Chief Justice Iftikhar Muhammad Chaudhry declared all the contracts of the rental power projects as 'illegal' and ordered that legal proceedings be instituted against all those involved in the corruption.

He said public sector Power Generation Companies (Gencos), Pakistan Electric Power Company (Pepco), Water and Power Development Authority (Wapda), National Electric Power Regulatory Authority (Nepra) and the federal government were responsible for the corruption of billions of rupees.

He observed that the policy of the rental power projects was not defined on the basis of transparency; rather than overcoming the circular debt, now standing at Rs 400 billion, the authorities endorsed more contracts. He directed that cases should be registered against former federal minister for water and power Raja Pervez Ashraf and the then secretary finance for water and power.

The money paid to the RPPs is now to be retrieved with the markup included. The petitioners who brought up the case last year were the sitting Minister for Housing and Works Faisal Saleh Hayat and MNA Khwaja Muhammad Asif of the PMLN.

Once again the RPPs are under attack because of the way they were brought into the field and 'enabled' by the PPP government whose prime minister is in the dock for contempt of the Supreme Court and haunted by cases of corruption by people close to him and by his family members. Of course the entire imbroglio is highly politicised with commentators divided among themselves on whether democracy should be sacrificed to accountability while the levers of real power are in the hands of the Army.

We are on thin ice when the judiciary gets into areas where the market is supreme. Pakistan is still not terribly conscious of the mistakes made by the judges when passing verdicts on a government grappling with market forces. The misfortune of the government is that even the Asian Development Bank (ADP) was not on its side when the RPPs failed to deliver. The charge that the government didn't do much to remove the circular debt is of a piece with public reaction anywhere in the world when the incumbent can't cope with the situation he has inherited.

Last year, plaintiff Makhdoom Faisal Saleh Hayat and the impugned minister Raja Parvez Ashraf had confronted each other on the matter of the RPPs on the TV and it was difficult to say that Mr Hayat had made a convincing case. As far as the media is concerned, Mr Hayat himself was not free of accusations of grave malfeasance when he was a minister in the Musharraf government.

Despite the judgement, investigation is needed to find out if the PPP mishandled the RPPs. It is not enough to say that the Government didn't clear circular debt and didn't control pilferage of electricity from the system. But what bites is the charge that more RPPs were installed. If the ADB pointed out 'major inconsistencies and weaknesses in the contracts' and found that RPPs would not be cost-efficient, does this mean that RPPs were essentially wrong? And if there were any rip-offs by the concerned ministers they must be investigated.

The Court has found that 'the contracts of all RPPs were entered into in contravention of the law and rules, thus violating the principle of transparency and fair and open competition, and making the RPPs themselves illegal and set up with mala fide intention'. It has found the government's defence inadequate about the RPPs 'that came on line and produced electricity much less than their generation capacity and far below the maximum capacity agreed between the parties as per the terms'.

Much of the other criticism in the media is useless: 'failure of the government to take real measures to fix the power crisis, including reducing dependency on expensive imported fuel and exploiting domestic power supplies more vigorously'.

Musharraf brought in IPPs in 2001 after it was accepted on all hands that the PPP's policy of bringing them into the economy in the 1990s was wrongly opposed. Then in 2006 Musharraf announced the policy of bringing in RPPs, which policy was adopted by the PPP government after coming to power and it brought in nine additional RPPs to Musharraf's two.

Musharraf didn't let Nepra pass on the cost of producing electricity to the consumers from 2003 to 2007. He did not want a negative public opinion to rise against him in the buildup to the elections and thought he could straighten things out later after being reappointed president. Non-payments started the process of debt accumulation that is today the bane of Pakistani life.

There is a shortfall of 6,500MW. Pushed on the backfoot, Islamabad has paid Rs 1 trillion in power subsidies over the last three years without making electricity. The government has a cashflow crisis while its moral and ethical health is greatly impaired by threat to its existence from at least six centres of power: 1) the Army, 2) the Judiciary, 3) the Opposition, 4) the Madrassa Network and Defence of Pakistan Council, 5) the Haqqani Network, and 6) Al Qaeda, the Taliban and Punjabi Taliban.

The PPP government is caught with its pants down on the way it handled the RPPs. But anyone coming in its wake will have to take the tough decisions - like privatising state-owned corporations - which it will not take. As one analyst wrote this year, 'as consumers, we need to stop imagining Pakistan as some socialist commune and prepare ourselves to soon start paying the real cost of power'. Populism is something that all institutions including the Supreme Court should congregate at the mausoleum of Quaid-e-Azam to solemnly abjure. The politicians are opportunists shooting down the RGST when they should have realised that the ghost of revenue shortfall is going to visit them next.

Shahid Javed Burki warned in 2009 (Dawn 17 August 2009) that deals done in a tight spot are never fair to the consumers and the highly prices RPPs were never a long-term solution: 'It should be understood though that depending on rented power is essentially a relief measure, not a long-term, not even a medium-term solution to the problem the country faces. As the Americans say, crisis provides an opportunity that must not be wasted; it should be used to put in place a well-thought out strategy'.

Friday Times