Pakistan’s economy literally rests on four simmering volcanoes. We have been criminally oblivious of those even as we assumed that the visible economy was trundling along satisfactorily, even if barely. Of those, the energy bomb has just begun to fizz. What we see on our roads and in our homes and markets are the first sign of the discontent and the unrest resulting from disabling inflation and people’s inability to pay what is charged to them. We know how we got here — capacity charges, deceptively corrupt contractual obligations et al — except that the chicken is now home to roost. Exaggerated bills borne out of ill-conception, stealing, ineptness and freeloading have begun to bite.
The circular debt in the power sector alone is in the region of 2600 billion annually of which around 2000 billion is capacity charges in free handouts if you will. We steal and freeload around 500 billion worth of power every year. Incompetence, inefficiency and corruption in the system writ large as we wrestle with what to do with the increasing frustration among those who must pay for these inadequacies — human, systemic and technical. The bomb is yet to fully explode, and we are already out of ideas. Around 1500 billion of the Gas Sector remains to be added to this bill and that already makes for some 40 per cent of the annual budget. Even more interestingly we have never shown this liability in the annual statement letting sleeping dogs lie kicking the can down the road as the most convenient escape from responsibility.
Discounting any and all plans bordering on superficial — spreading the payment, seeking relaxation from the IMF to subsidise life-line users, which the IMF has not unexpectedly balked at — there are three options that can perhaps still save the day:
First — declare a country-wide energy emergency which we are in already and considering how tenuous the stability of the republic has become invoke a force majeure in the agreements signed with the IPPs. If that threatens our future credibility and sovereign trust, we must choose from keeping a false face and risk losing the republic or save the republic to rebuild the trust when we have things under better control. It will give us the opportunity to renegotiate what has been insidiously and foolishly contracted in favour of Independent Power Plants mostly owned by political players, big business, or their frontmen. Chinese power plants under CPEC have piggybacked on what was already an existing convention; though they should be the ones to lead renegotiations to save Pakistan from unbridled plunder of state and public resource.
Second — if under this revised protocol of an emergency, power producers refuse to go along with revision of the terms and in working a way out for the state and ease the pain to its people, our only recourse should be to take over all power plants. Yes, nationalise those and bring those under state control. Don’t cringe. We will not be the first ones to do so even if times have changed — Mexico did that when it found itself embroiled in a manipulated and a crafted environment of costly and inefficient power supply crisis. We may then rationalise the sector making it feasible minus its debilitating and generous clauses returning those to private hands in due course. The IPPs can make their choice from among the three options to save people undeserved privation.
Third — and this is the second ticking bomb and a primal threat to economy which if resolved can also offer a solution to the energy conundrum: Pakistan may choose to dispense of its baggage of Public Sector Enterprises. Together, these bleed around 1100 billion from the exchequer every year in operational and debt costs. Most are used to park party personnel by political parties which are loathe to let go of this bleeding sore. These enterprises — well over 200 of them; loss making and eating up precious resource — carry assets that value over thousands of billions. These include the Railway, the Steel Mill and WAPDA. An unexplained legacy romance and crass opportunism defies the logic of not dispensing these haemorrhaging behemoths in the name of strategic assets. Pray, what is more strategic than the health of the republic and its people. And, when the choice is between saving the republic or these legacy dinosauric structures the choice should be straight forward.
From the proceeds of these sales a wealth fund can be created to sustain a rationalised power structure which will serve its users than bedevil them perpetually. A combination of these factors can work to alleviate the yoke of disability imposed on the people in a sector most poorly managed and perceived. When push comes to shove this alone will make the obstinate and the recalcitrant comply. It is time for the state to assert itself. We will rebuild our credibility later. Unplugged diplomacy should help explain the need for such drastic steps to our external partners. IPP owners either understand the dilemma and rework the contracts or stare into the possibility of a declared Energy Emergency leading to invocation of force majeure and nationalisation of the power and energy infrastructure in the short to medium term. The choice is theirs to make.
The other two time-bombs that tick with equal ferocity are the Population and the Pensions bombs. Population continues to grow much faster than any other developing economy excepting a few in Africa. An over2.5 per cent growth rate is incomprehensible in this day and age when the GDP growth also hovers at 2-3 per cent. At these rates of population growth, net GDP is negative. This slide must be stemmed. Other than direct intervention which needs to be intensified — just as Bangladesh has done — systemic accompaniments like female empowerment through literacy and preferential employment are key to arresting this downslide in any effort on economy and remove the roadblock to sustained growth.
Pensions are inching up to 800 billion annually. Soon these will cost as much as the PSEs to keep those afloat. This will only get worse and soon gnaw at the fundamentals of any economic option. A Pensions Fund created from within the Budgetary allocations is desperately needed to make it self-sustaining — an investable pool which can build over time and pay for those retired as is the case in most modern economies. Policy intervention in terms of gratuity payments as well as reviewing the terms of service and reducing the size of the government employees in pensionable positions is what must find priority in our consideration.
Unless we deal with these ticking bombs in urgency, we will soon be enveloped by a self-debilitating structure of the economy which stands seriously distorted, deformed, corroded and leaky. Each other step else is only a band-aid in the presence of persisting disabilities.
Published in The Express Tribune, September 8th, 2023.
The circular debt in the power sector alone is in the region of 2600 billion annually of which around 2000 billion is capacity charges in free handouts if you will. We steal and freeload around 500 billion worth of power every year. Incompetence, inefficiency and corruption in the system writ large as we wrestle with what to do with the increasing frustration among those who must pay for these inadequacies — human, systemic and technical. The bomb is yet to fully explode, and we are already out of ideas. Around 1500 billion of the Gas Sector remains to be added to this bill and that already makes for some 40 per cent of the annual budget. Even more interestingly we have never shown this liability in the annual statement letting sleeping dogs lie kicking the can down the road as the most convenient escape from responsibility.
Discounting any and all plans bordering on superficial — spreading the payment, seeking relaxation from the IMF to subsidise life-line users, which the IMF has not unexpectedly balked at — there are three options that can perhaps still save the day:
First — declare a country-wide energy emergency which we are in already and considering how tenuous the stability of the republic has become invoke a force majeure in the agreements signed with the IPPs. If that threatens our future credibility and sovereign trust, we must choose from keeping a false face and risk losing the republic or save the republic to rebuild the trust when we have things under better control. It will give us the opportunity to renegotiate what has been insidiously and foolishly contracted in favour of Independent Power Plants mostly owned by political players, big business, or their frontmen. Chinese power plants under CPEC have piggybacked on what was already an existing convention; though they should be the ones to lead renegotiations to save Pakistan from unbridled plunder of state and public resource.
Second — if under this revised protocol of an emergency, power producers refuse to go along with revision of the terms and in working a way out for the state and ease the pain to its people, our only recourse should be to take over all power plants. Yes, nationalise those and bring those under state control. Don’t cringe. We will not be the first ones to do so even if times have changed — Mexico did that when it found itself embroiled in a manipulated and a crafted environment of costly and inefficient power supply crisis. We may then rationalise the sector making it feasible minus its debilitating and generous clauses returning those to private hands in due course. The IPPs can make their choice from among the three options to save people undeserved privation.
Third — and this is the second ticking bomb and a primal threat to economy which if resolved can also offer a solution to the energy conundrum: Pakistan may choose to dispense of its baggage of Public Sector Enterprises. Together, these bleed around 1100 billion from the exchequer every year in operational and debt costs. Most are used to park party personnel by political parties which are loathe to let go of this bleeding sore. These enterprises — well over 200 of them; loss making and eating up precious resource — carry assets that value over thousands of billions. These include the Railway, the Steel Mill and WAPDA. An unexplained legacy romance and crass opportunism defies the logic of not dispensing these haemorrhaging behemoths in the name of strategic assets. Pray, what is more strategic than the health of the republic and its people. And, when the choice is between saving the republic or these legacy dinosauric structures the choice should be straight forward.
From the proceeds of these sales a wealth fund can be created to sustain a rationalised power structure which will serve its users than bedevil them perpetually. A combination of these factors can work to alleviate the yoke of disability imposed on the people in a sector most poorly managed and perceived. When push comes to shove this alone will make the obstinate and the recalcitrant comply. It is time for the state to assert itself. We will rebuild our credibility later. Unplugged diplomacy should help explain the need for such drastic steps to our external partners. IPP owners either understand the dilemma and rework the contracts or stare into the possibility of a declared Energy Emergency leading to invocation of force majeure and nationalisation of the power and energy infrastructure in the short to medium term. The choice is theirs to make.
The other two time-bombs that tick with equal ferocity are the Population and the Pensions bombs. Population continues to grow much faster than any other developing economy excepting a few in Africa. An over2.5 per cent growth rate is incomprehensible in this day and age when the GDP growth also hovers at 2-3 per cent. At these rates of population growth, net GDP is negative. This slide must be stemmed. Other than direct intervention which needs to be intensified — just as Bangladesh has done — systemic accompaniments like female empowerment through literacy and preferential employment are key to arresting this downslide in any effort on economy and remove the roadblock to sustained growth.
Pensions are inching up to 800 billion annually. Soon these will cost as much as the PSEs to keep those afloat. This will only get worse and soon gnaw at the fundamentals of any economic option. A Pensions Fund created from within the Budgetary allocations is desperately needed to make it self-sustaining — an investable pool which can build over time and pay for those retired as is the case in most modern economies. Policy intervention in terms of gratuity payments as well as reviewing the terms of service and reducing the size of the government employees in pensionable positions is what must find priority in our consideration.
Unless we deal with these ticking bombs in urgency, we will soon be enveloped by a self-debilitating structure of the economy which stands seriously distorted, deformed, corroded and leaky. Each other step else is only a band-aid in the presence of persisting disabilities.
Published in The Express Tribune, September 8th, 2023.
