Uncompetitive

Capital suggestion

Decades of corruption – plus incompetence – has made Pakistani products uncompetitive in the world market. Our sugar mills now produce the most expensive sugar in the region. Our wheat is perhaps the most expensive in the world; the price of wheat in Pakistan is Rs32.5 per kg while the international market is 35 percent lower. Our cotton dependent economy is not being able to compete internationally because of high input costs.

We have eight million tons of surplus wheat but in order to export the surplus the government would have to provide a subsidy of $50 per ton (a total of $400 million). We have more than a million tons of surplus sugar but in order to export the surplus the government would have to provide a subsidy of at least $50 per ton.

What’s really going on? Take the Nandipur Power Project, for instance. On December 3, 2007, Dongfang Electric Corporation agreed to build the 515MW Nandipur Power Project at a cost of $329 million. By the time Nandipur was completed the cost had gone up to $847 million. Imagine: just the financial cost must have gone up from $25 million a year to $70 million a year.

Over the life of Nandipur, someone has to pay up the difference: between $329 million and $847 million. The cost of public-sector corruption-and incompetence-would have to be borne by the private sector.

In September 2014, Mohammad Mehmood, MD of Nandipur, informed the National Electric Power Regulatory Authority (Nepra) that oil-based cost of generating electricity would be Rs26 a unit. For the record, the electricity that comes out of Nandipur is more expensive than any other plant of its kind. Resultantly, whatever is produced by that electricity would be uncompetitive in the global marketplace.

Take LNG, for instance. On May 26, 2016, Himayatullah Khan, vice chairman of Nepra, said, “the Central Power Purchasing Authority (CPPA) has inflicted a financial loss of Rs4 billion by giving preference to LNG fired generation as compared to furnace oil based generation.” The same day, the CPPA “accepted that merit order has not been followed in April and expensive electricity has been generated on LNG compared to furnace oil.”

For the record, the electricity that is coming out of LNG-fired power plants is more expensive than furnace oil based generation. Resultantly, whatever is produced using electricity produced by LNG fired power plants would be uncompetitive in the global marketplace.

According to Abbas Hasan’s ‘Mega projects and mega risks’, “the current price of LNG in the international market as quoted by the Platts-JKM index is $4.52 per mmBTU or 47 percent lower than what Pakistan is paying for this exactly the same commodity.” Someone has to pay up the difference between $4.52 per mmBTU and $6.65 per mmBTU (the price at which Pakistan is buying LNG). The difference between the two is about Rs40 billion a year. This Rs40 billion a year cost will have to be borne by no one but the private sector.

Corruption-and incompetence-in the public sector have a definite cost. One of those costs is the high cost of living for everyone in the private sector. The other cost is an uncompetitive private sector, uncompetitive in the international market.

The writer is a columnist based in Islamabad.

Email: farrukh15@hotmail.com Twitter: @saleemfarrukh