A matter of capital and margins

LAHORE: Businessmen keenly attend functions where policymakers come to listen to their problems and then explain with reasoning their inability to facilitate them. Still they suggest solutions that they wrongly claim would not hurt the exchequer.

Caretaker Ministers of Energy and Commerce and Trade jointly visited the Lahore Chamber of Commerce and Industry and All Pakistan Textile Mills Association recently. The LCCI hall was jam-packed as never before, and at the APTMA most of its members and almost all journalists attended the meeting without any seats.

The main attraction at these functions was Muhammad Ali, the Minister for Energy and Petroleum. The minister from the onset explained to the traders and industrialists that for the time being, the government is not in a position to facilitate them. He requested them to operate on low margins for a while before the government could come out with a viable solution. In fact, he warned that power and gas tariffs could further increase in the near future.

The industrialists at APTMA said that they do not want any concession or subsidy, but simply desire a regionally competitive power and energy tariff. They ignored the fact that the regionally competitive tariff cannot be given to the sector without huge subsidies.

Government or NEPRA fixes power tariff on the basis of cost of electricity including line losses, capacity payment to IPPs, theft and the interest the state pays on circular debt. How can the government waive these expenses for one sector or the entire industrial sector? If it did, the power tariff for everyone else would double from the current Rs42 per unit to Rs84 per unit. Is it a feasible proposition?

Industrialists asked the minister to reserve the entire production of a recently installed LNG-based power plant in Punjab for the industry. To do so the industry would have to pay wheeling charges to NEPRA that currently stand at Rs28 per unit.

The minister agreed that this is unreasonable. However, NEPRA said that it incurs Rs4 as cost of line losses, Rs4 as interest on servicing circular debt, and Rs8 as the capacity payment to the IPPs.

On top of that, NEPRA pays charges relating to non-payment of bills, the maintenance of the wheeling network and so on. Industrialists want wheeling charges to come down to one cent which is not possible.

The energy minister said the system needs correction and his assessment is that things can improve when policies being formulated are implemented in letter and spirit.

Till then he advised the industrialists to bear with high tariffs like all other segments of society. Pakistan is passing through a torrid time. Masses are living in misery. Some industrial sectors have also suffered badly, but most sectors are operating at reduced profit margins.

Listed companies at the Pakistan Stock Exchange are in good shape. Their share values might have come down a little, but their profit margins are still healthy though in many cases lower than the profits they earned when the economy was booming.

They complain of high taxes, high power and gas tariffs and demand that industries should be given preference and special tariffs that are not given to the general public. These industrialists do not realise that if any segment really needed some concession they are the downtrodden segments of society who have literally come on roads and are living a semi-starved life.