Tuesday July 23, 2024

Replacing hopium with reality: Part - II

Leftover molecules should be stored by reducing production at field level by 2027 country’s captive power plants, three RLNG units, and fertilizer

By Sheikh Imran Ul Haque
January 30, 2024
This picture shows a general view of the seaport in Karachi, Pakistan. — AFP/File
This picture shows a general view of the seaport in Karachi, Pakistan. — AFP/File

Pakistan revises its energy prices on a fortnightly (fuel, LPG and LNG), monthly (power) and biannually (gas) basis. This habit needs to be replaced by an approach that smoothens the impact of changes in prices and reduces the risk without causing political despair every fortnight, month and six months.

The review of tariff adjustments by ‘Business Recorder’ BR highlights that it is manageable. Starting July 2024, the plan to rationalize tariffs with a reduction in government intervention necessitates empowering Ogra and Nepra and providing indigenous gas to only power plants and fertilizer.

Leftover molecules should be ‘stored’ by reducing production at the field level. By 2027, the country’s captive power plants, three RLNG units, and fertilizer, and the rest of the industry should start utilizing RLNG/LPG/LPG Air-Mix phased. The case for fuel pricing based on futures with the role of the PMEX should be defined and implemented by a combined regulator.

In parallel, regulators with CPPA-G, DISCOs and Sui companies should determine timelines for the power and gas sectors’ loss reduction (losses 15 per cent, recovery 95 per cent and UFG 5.0 per cent). The case for reducing circular debt by investing in the above recommendations and increasing royalties on oil/gas, windfall levy against crude oil, levy on LPG/petroleum and GIDC should be implemented over the next five years.

The FIPPA applicability to investments in ambitious projects – TAPI, Reko Diq, refinery, petrochemical, CASA 1000, etc – by the ministry concerned without approval by the cabinet and the deregulation of the sector combined with the wealth fund will encourage PSO, OGDCL, PPL, utilities and DISCOs to partner with qualified and experienced partners.

‘Hopium’ should no longer be the norm; over the last 75 years, all we have seen is various stakeholders clinging on to false hope, side-stepping logic and reasoning and abandoning data-driven decision-making.

Pakistan’s current economic model is not working. Significant progress in poverty reduction achieved in the past has now started to reverse and the benefits of economic growth are restricted to a narrow elite, according to the World Bank.

Stakeholders need to coordinate and move beyond point scoring, not be economical with truth. They should communicate their plan for the future and work together while implementing solutions to our next-decade challenges. A Pakistan First approach is needed, and caretaker ministers have shown how this can be done.

Our political manifestos should focus on that instead of building on the usual hopium given that Pakistan requires a sustained GDP growth of 7-9 per cent for 30 years, an increased focus on reducing the fertility rate and measures to lift the universal/minimum pay to Rs75,000 per month, with revisions every July to adjust inflation.

Focused subsidies with matching funding can deliver free electricity units, healthcare facilities, houses to the homeless and young people, ‘kissan’ (farmers) cards, hunger eradication and quality education. But without challenging the status quo and highlighting revenue measures, the promises of social welfare programmes are nothing but old wine in new bottles.

But how is productivity supposed to improve? The next decade requires tough choices – disruptive inspiration and a no-business-as-usual approach. It necessitates a credible structural reform package and a conducive investment environment, encouraging regional trade, changing the state of patronage and taking decisions by allowing professionals to undertake their job diligently as they tackle scenarios that evolve and be able to modify the path accordingly without repercussions.

Effective law enforcement will facilitate investment, and this has to be encouraged by the federation, ensuring continuity of policies and transparent procedures.

Deregulation and a competitive environment require regulatory policies/roles providing enforcement authority only when self-monitoring fails. We need staged and limited investment incentives including a reduction in the number of permissions required, encouraging new approaches.

Pakistan also lacks a conducive business environment provided by a tolerant society. There should be a well-defined role of the judiciary in commercial matters with a viable contract dispute resolution mechanism in place, with no judicial activism, which does not cancel contracts but works towards ensuring an effective contract arbitration process.

Other measures include strengthening defamation laws, discouraging media trials aimed at victimization, and providing retribution for false cases.

Given increasing interdependency, Pakistan’s most disruptive paradigm change requires effectively integrated planning necessitating a planning commission working as ‘Pakistan NDRC’ on the lines of the National Development and Reform Commission (NDRC) in China, defining institutional parameters and boundaries for growth based on the guidance of the Strategic Investment Facilitation Council (SIFC), acting as the board of directors.

This challenge to the status quo requires the consolidation of commerce, industry, exports and the BoI, privatization, maritime affairs, railways and communication, science and technology, IT and education, energy, and agriculture under a planning commission led by the deputy prime minister or a senior minister and assisted by experts, think tanks and financing institutions to evolve a home-grown executable strategy.

The next disruptive measure is the revival of the PIDC as a holding company to manage the shares of the federal and provincial governments in state-owned enterprises (SOEs), followed by their aggressive transformation, consolidation of roles, and reduction/merger of departments/companies. The revival will also help encourage new export opportunities, partnering with the defence industry, focusing on regional cooperation and undertaking strategic infrastructure investments.

SOEs’ employment exchange role needs to end as federal SOEs are the least profitable in the region while the subsidies, loans and equity injections they require eat up a major portion of the GDP. Equity injections make up 1.4 per cent of the GDP; guarantees and loans made up 3.1 per cent of the GDP in 2016 and 9.7 per cent during 2016-21.

With the SOE bill in its ‘review’ phase, the goal now has to be consistency and confidence building through measures that ensure the ease of doing business, encouraging FDI under 3P while restructuring SOEs’ assets/debts.

The PIDC is thus necessary, and the rebuilding of 206 SOEs instead of initiating green field projects is more cost-effective and reflects a commitment to change. The PIDC would have the role of a wealth fund as well and is to be a corporate holding company structure. The PIDC also requires immunity from investigations by NAB and the FIA. SOEs involved in the Reko Diq copper and gold project should be entitled to indemnification in case of losses and damages incurred.

This disruptive measure is essential, given our history of privatization. Efforts for reorganizing and transforming SOEs have had limited success. and execution will happen only with an experienced technocrat board.

Instead of a big bang approach, sustained efforts by an effective empowered leadership team are required to manage SOEs based on the principle of working for profit. SOEs should not rely on bailouts every three years. If the government is unable to reduce the number of institutions, it should merge them, corporatize them and force them to be financially self-reliant, productive and competitive.

The PIDC’s functional divisions are to be managed by a qualified CEO with the powers of a director. Divisions would be a corporate structure and could be industry, engineering, and energy including IPPs and commodities etc. These individual subsidiaries would be listed, and GOP shareholding would be reduced over time by bringing in equity partners.

To be continued

The writer is an experienced professional who has held leadership positions in various companies and organizations. He can be reached at: