Dec-13-2014
Circular debt yet again
THE independent power producers have been persuaded to withdraw their notices to call in their sovereign guarantees for now, and the government is busy trying to arrange the funds for another massive retirement of the circular debt. The latter has once again reached historic highs near Rs580bn. This spiraling increase has happened in spite of huge increases in the power tariff.
This is the second time that the IPPs have been forced to call in their sovereign guarantees, which means pushing the government into paying up or being declared in sovereign default in the last two years.
The government has reportedly told the IPPs that so long as the notices are hanging over its head, its ability to raise funds to properly pay the receivables in the power sector will be hampered. This shows the enormous position of weakness that the government finds itself in when dealing with private power producers. Not that long ago, Nepra, the power regulator, had raised the prospect of auditing the accounts of the IPPs to determine if they were properly billing the government for sale of power. But this time round it appears all attempts to push back against the IPPs’ tough talk have been abandoned.
The State Bank has also said in its annual report that the circular debt “will be paid this fiscal year, or it could risk undermining the supply chain of power”, meaning we could land up right where we were in June 2013, with unending power outages across many parts of the country. Certainly nobody wants to traverse that territory again, but we also cannot afford to keep letting the debt pile up then retire it at one go every two years. Somewhere something has to change fundamentally to make sure that this problem does not keep recurring, and endless tariff increases are not accomplishing the task at hand.
The fundamental changes needed are on the distribution side. This is where the bulk of the inefficiencies are piling up. The government’s efforts thus far have been focused on increasing generation, because improving distribution is a long and difficult road that includes fundamentally reforming the distribution companies and making them more responsive to the needs of the consumers and the prerogatives of the government. The minister for water and power has emphasised the importance of the transmission and distribution side as well, saying that it is pointless to arrange for more electricity since our system cannot carry it. The State Bank has also pointed in this direction, saying “the immediate solution lies in overhauling the existing transmission and distribution system on a war footing”, as well as bringing down the cost of generation. Given the emphasis that the transmission and distribution inefficiencies have been receiving over the years, it is almost incomprehensible why there has been so little effort at reforming this.
Rethinking shutdowns
TENTION of the words ‘shut down’ and ‘strike’ send a wave of uncertainty rippling across Karachi, and for good reason.
As is often the case, such protests are accompanied by violence and bloodshed, as well as the disruption of daily routines and loss of livelihoods. Luckily for residents of the metropolis, the PTI’s shutdown on Friday was a relatively peaceful and violence-free affair. Roads were indeed blocked by party workers at key points in the city while tyres were burnt at many spots. But compared to past protests in Karachi, and the recent unfortunate events in Faisalabad, the shutdown in the country’s financial hub passed off without incident. There are of course reasons for this. Firstly, the PTI itself was in a restrained mood and seemed content to block roads from dawn to dusk to get its message across. The realisation that the protest was taking place the day before Chehlum must have also led the party leadership to ensure that matters did not get out of hand at such a sensitive time. Secondly, the attitude of the PPP-led Sindh government was starkly different to what the PML-N administration in Punjab put on display in Faisalabad. While workers from both the PTI and the N-League were riled up at that event, perhaps the ugly violence could have been avoided had the PML-N taken a less confrontational stance, especially when it was running both the provincial and federal governments. And then, the MQM arguably Karachi’s most powerful political force also seemed content to let Imran Khan’s party have its day in the sun; in fact Muttahida chief Altaf Hussain defended the PTPs “political and constitutional right” to protest.
While it is indeed the democratic right of all groups to stage peaceful protests, political and religious parties need to rethink the strategy of using shutdowns as an effective mode of protest. Even when shutdowns are peaceful, as on Friday, the financial losses caused to the national economy by bringing life in major cities to a halt are considerable. And in case the demonstrations turn violent, the damage can be high both in terms of blood and treasure. At the end of the day, blocking roads and suspending routine activities hits the common citizen the hardest. Hence protests must be planned in such a way that the message is conveyed to the intended recipients with the least inconvenience caused to the public at large.
Foreign pressure
IT is a measure of Pakistan’s weak position in the comity of nations that even a modest attempt by Islamabad to diversify its economic and defence ties can invite pressure if not disapprobation from Western quarters. For instance, some days ago, the European Union envoy to Pakistan, Lars-Gunnar Wigemark, urged the government here to condemn Russia’s “aggressive role” in Ukraine. Pakistan’s recent deal with Russia is hardly the milestone in ties described by Islamabad. No doubt, the accord speaks of cooperation between the two countries in a variety of fields, including defence which at best concerns Russia’s willingness to sell MI-35 helicopters to Pakistan. Given the unhappy relationship Pakistan has had with Russia in the past, the accords signed last November are significant from Islamabad’s point of view at a time when Nato forces have all but withdrawn and a question mark hangs over the future of Afghanistan, where stability and peace are a common concern for all regional countries. That the EU envoy should put pressure on Islamabad to adopt a position which militates against its bid to improve relations with Russia underlines Pakistan’s weakness in the harsh world of geopolitics.
Contrast this with India’s ambitious deal under which Russia will supply 10 nuclear reactors to it. This massive inflow of nuclear assets from Russia follows a similar deal with the United States some years ago, with both Moscow and Washington accepting New Delhi’s sovereign right to set its own priorities in foreign affairs. To be fair to Pakistan, this country successfully stood all pressures when it came to ties with China. But the leaders who crafted our China policy were a different breed. They had the courage to chart an independent foreign policy at the height of the Cold War when Pakistan was in the Western camp. Now it is Pakistan’s aid-dependent economy, rampant terrorism and political instability that make it weak and diffident. If we want to earn the world’s respect, we must first put our house in order.