Sunday, February 28, 2010

Resolving Pakistan's Circular Debt, Electricity Shortages

As Pakistanis discuss major causes and crippling effects of the worst ever power crisis in the nation's history, "load shedding" and "circular debt" are two key phrases that have entered the vocabulary of average people in Pakistan during the last few years.

Load Shedding:

What do these common phrases mean? Let me start with "load shedding" first. Long and daily power outages are called "load shedding". "Load shedding" is supposedly an attempt to share a limited resource equitably among many consumers. In addition to insufficient installed capacity as the culprit, the dramatic increase in "load shedding" in the last two years is commonly also blamed on growing "circular debt" which results in significant under-utilization of power plants already in place. There is credible data to suggest that the deepening electricity crisis since 2008 has more to do with the independent power producers(IPPs) operating at less than 50% of their installed capacity because they can not pay for the fuel they need to produce more. The outgoing finance minister Mr. Shaukat Tarin acknowledged the problem of circular debt, and tried to focus on it. He even threatened to quit last year over the lack of resolution of this problem. However, he was only partially successful in paying down the government debt. He is reportedly taking a parting shot at the problem on his final day in office.

Key Players:

The key players in this "circular debt" trap are the federal and provincial governments as the biggest deadbeats, the power distributors like KESC, the power producers like Pepco and Hubco, and the fuel suppliers like government-owned Pakistan State Oil (PSO) and partially state-owned Pak-Arab Refinery Ltd (PARCO). This debt circle begins with the government as the biggest debtor and ends with a government-owned entity as the biggest creditor. So the obvious question is: If the government is both the biggest debtor and the biggest creditor, then why is it that the government leaders can not solve the problem? Is it the lack of will? or the lack of competence? Is there a personal profit motive of the top leader of the ruling PPP, who is allegedly pushing rental power plants (RPPs) contracts ahead of the speedy resolution of circular debt? Is it a combination of corruption and incompetence? The answer to these questions depends on who you ask.

Circular Debt:

While you ponder possible answers to the question of resolving circular debt, let me share with you an interesting story posted by Naresh Goyal that explains circular debt and how it can be resolved:

It is raining, and the little town looks totally deserted. It is tough times, everybody is in debt, and everybody lives on credit.

Suddenly, a rich tourist comes to town... He enters the only hotel, lays a 100 Euro note on the reception counter, and goes to inspect the rooms upstairs in order to choose one.

The hotel proprietor takes the 100 Euro note and runs to pay his debt to the butcher. The butcher takes the 100 Euro note, and runs to pay his debt to the pig grower.

The pig grower takes the 100 Euro note, and runs to pay his debt to the supplier of his feed and fuel...

The supplier of feed and fuel takes the 100 Euro note and runs to pay his debt to the town's prostitute that in these hard times, gave her "services" on credit.

The hooker runs to the hotel, and pays off her debt with the 100 Euro note to the hotel proprietor to pay for the rooms that she rented when she brought her clients there.

The hotel proprietor then lays the 100 Euro note back on the counter so that the rich tourist will not suspect anything.

At that moment, the tourist comes down after inspecting the rooms, and takes his 100 Euro note, after saying that he did not like any of the rooms, and leaves town.

No one earned anything. However, the whole town is now without debt, and looks to the future with a lot of optimism.....


Summary:

Clearly, the circular debt problem has assumed alarming proportions, threatening Pakistan's future. The IMF and the US officials in their recent meetings with Pakistan government have described the circular debt as a significant threat to the country’s economy.

After signing hundreds of millions of dollars worth of rental power plant (RPPs) projects in the face of harsh criticism, the government is finally starting to deal with rising circular debt to address power shortages. Outgoing finance minister Saukat Tarin recently told the News that “in real terms the circular debt has swelled to Rs108 billion which mainly includes non-payment of Rs42 billion by KESC, Rs21 billion by the government of Sindh and Rs15-16 billion from commercial consumers to the Pakistan Electric Power Company (Pepco)".Just prior to leaving office, Tarin has decided to raise Rs. 25 billion as a small step toward settling a debt estimated at hundreds of billions of rupees.

Unless Pakistani government deals with the economics of power generation by boldly tackling the issue of growing circular debt quickly, it will be almost impossible to get the IPPs to fully utilize existing installed capacity, much less attract new investments in the power sector.

Related Links:

Tarin's Parting Shot at Circular Debt Problem

Circular Debt: Finance 3.0

Shaukat Tarin Resigns

US Fears Aid Will Feed Graft in Pakistan

Pakistan Swallows IMF's Bitter Medicine

Shaukat Aziz's Economic Legacy

Pakistan's Energy Crisis

Karachi Tops Mumbai in Stock Performance

Pakistan's Electricity Crisis

Pepco Increases Load Shedding By 5 Hours

16 comments:

Shahid said...

I follow your blog for a long time and must tell you that your posts always prove to be of a high value and quality for readers. Keep it up.

Riaz Haq said...

Pakistan has appointed Abdul Hafeez Shaikh, a Musharraf-era minister, as the new finance chief to fill the vacancy left by Tarin's resignation. Here's a Wall Street Journal report on it:

The post of finance minister has been vacant since Shaukat Tarin, a former Citibank executive who was a vocal critic of government corruption, resigned three weeks ago citing personal reasons. Prime Minister Yousuf Raza Gilani has overseen the ministry in the interim.

Mr. Tarin's surprise departure and delays in appointing a successor raised concerns at a time when Pakistan's financial situation remains fragile.

The appointment of Mr. Shaikh, who is viewed as having wide-ranging political and business experience, could help to assuage those worries, analysts said. "He is noncontroversial and highly regarded in the international financial agencies," said Ashfaq Hasan Khan, a former senior finance ministry official who teaches at National University of Science and Technology in Islamabad.

The 55-year-old Mr. Shaikh, a U.S.-trained economist who served as privatization minister in former President Pervez Musharraf's military-led government, is expected to take office next week, a senior finance ministry official said.

In the 1990s, Mr. Shaikh served as country head of the World Bank's operations in Saudi Arabia. He comes from an influential family of politiciansfrom the southern province of Sindh, though he isn't a member of any political party. He will hold the official title of Adviser to the Prime Minister on Finance because he isn't a member of parliament. The post has the same authority as finance minister.

"My main priority will be on growth and sound financial management," Mr. Shaikh said in a telephone interview. "I will concentrate on creating an environment that could attract private investment."

Mr. Shaikh is a partner in New Silk Route Partners, a private-equity firm that invests in Asia and the Middle East.

"He is experienced and strong on delivery. His appointment will give a lot of confidence to the stock market and to investors," said Muddassar Malik, chief executive of BMA Capital Funds, a Karachi-based asset-management company.

The International Monetary Fund has earmarked $11.3 billion in emergency loans for Pakistan since November 2008 when Islamabad faced a balance-of-payments crisis amid an al Qaeda-linkedIslamist insurgency that deterred investors.

To get regular disbursements of this money, Pakistan has to meet goals such as reducing its budget deficit from a current 5.1% of gross domestic product, reining in runaway inflation and increasing tax collection.

A major challenge for Mr. Shaikh will be energizing the country's struggling economy. He will also be under pressure to find money to help build much-needed infrastructure, such as power plants.

Riaz Haq said...

Pakistan govt is planning to sell Islamic bonds or sukuk this year to raise money and resolve circular debt in power sector, according to Dawn:

ISLAMABAD: The finance ministry has finalised plans to issue Rs100 billion Sukuk bonds before the end of current fiscal year to retire the circular debt that has been a major concern for the power generation companies, oil suppliers, refineries and exploration companies.

“The Rs100 billion denominated Sukuk bounds will be floated in May this year and the target investors are religious-minded people with cash in hand,” said a senior official of the finance ministry.

Initially the finance ministry proposed to float Islamic papers with one year maturity period, but the State bank objected saying the central bank had already floated one year Treasury Bills.

“The ministry is now considering other options for the non-interest based bond to be launched on the pattern of Pakistan Investment Bonds (PIBs), the official said. The cut-off yield on the proposed Sukuk bonds would be around 12.7 per cent as is on the PIBs.

“The Government of Pakistan will be the sovereign guarantor of the sukuk bond issue,” the official said and added that the government needed additional liquidity to check further increase in the circular debt. The circular debt has again reached to Rs150 billion mainly due to limited collections by the eight electricity distribution companies.

The official said that the sukuk bond was expected to be heavily oversubscribed due to availability of liquidity in the Islamic banking system.

“As the Islamic banks have limited options to invest in Sharia-compliant modes, these bonds would offer an attraction to them,” he added.

It is estimated that around Rs50 billion are available with the Islamic banks, but their lending ratio is low compared to the deposit ratio.

PIBs and Sukuk bond are permanent debt and this time the government wants to raise money from Islamic banks to settle the circular debt of power sector once for all. Under the IMF conditionality which requires zero borrowing from the State Bank, the government is now heavily borrowing from commercial banks.

The government had shifted Rs85 billion circular debts to the Power Holding Company through issuance of Term Finance Certificates (TFCs) last year, which were bought by the commercial banks.

Riaz Haq said...

The Transparency International Pakistan (TIP) has claimed that it has identified corruption cases worth Rs 300 billion in different federal government departments during the last one year.

Expressing his disappointment, Chairman TIP Syed Adil Gillani said that there was no effective accountability process in Pakistan due to which corruption was on the rise. He said that the TIP referred a number of corruption cases to the National Accountability Bureau (NAB), one of Pakistan's controversial departments, but it did not initiated so far a single case against the perpetrators.

"Only the Supreme Court of Pakistan, the Public Accounts Committee of the National Assembly and the Public Procurement Regulatory Authority (PPRA) took notice of some of these corruption cases," he said.

The report released by TIP on Tuesday indicates that Pakistan is all set to hit further lows amongst the world's most corrupt nations. The 2009 report showed Pakistan climbing five numbers from the previous 47 to become the 42nd most corrupt country in the world.

Amongst the major corruption cases, Gillani said the Rental Power Projects (RPPs) of the government, was on the top. The government awarded 14 contracts in violation of the PPRA rules which caused a loss of over US$ 2 billion. The TIP had also written to the Supreme Court on this case of massive corruption and irregularity.

The sale and procurement policy of the Pakistan steel Mills had caused a reported loss of Rs 22 billion due to corruption. This corruption case had already been taken up by the apex court.

Gilani also informed of about the alleged violation of Pubic Procurement Rules 2004 by Pakistan Railways in the tender for procurement of 150 locomotives, only US made, which might have caused a loss of at least Rs 40 billion to the national exchequer. The project, he said, is presently on hold.

The other departments involved in mega corruption cases, according to Gillani, include Pakistan's Oil and Gas Development Company (OGDCL), National Insurance Corporation Limited (NICL), PRIMACO (Pakistan Real Estate Investment and Management Company Ltd), National Highways Authority (NHA), Trade Development Authority of Pakistan (TDAP), Pakistan Electric Power Company (PEPCO), Employees Old-age Benefit Institution (EOBI). Pakistan's Oil and Gas Development Company Limited made headlines in the recent past when Prime Minister Gillani appointed his jail mate and a convict who was not even a graduate as its managing director.

Read more: Pakistan world's 34th most corrupt nation - The Times of India http://timesofindia.indiatimes.com/world/pakistan/Pakistan-worlds-34th-most-corrupt-nation/articleshow/6815792.cms#ixzz13Vn9ofdc

Riaz Haq said...

WAPDA's debt payable to independent power producer Hubco's has risen to Rs. 75 billion, according to Business Recorder:

KARACHI: The receivables of Hub Power Company Limited (HUBCO) against WAPDA have piled up to Rs 75 billion on account of electricity purchase as of February 21, 2010 and of this Rs 69 billion is classified overdue or payable immediately.

According to HUBCO's communique sent to KSE here Monday, the board of directors of power Supply Company was told that as a result of WAPDA outstanding HUBCO owes Rs 68 billion to Pakistan State Oil (PSO) for fuel supply to the power plant.

The company's obligation to PSO remains covered by a Stand-by Letter of Credit of Rs8 billion provided by HUBCO to PSO under the Fuel Supply Agreement.

One of the consequences arising from this situation has been that the fuel supplied by PSO has been insufficient to meet the plant's minimum operational requirements.

HUBCO said that the company is in constant follow-up with WAPDA and the Federal Government for early release of the entire outstanding amounts.

In addition, WAPDA is unable to provide a Letter of Credit as required under our power purchase agreement (PPA) for an amount of Rs12.92 billion. The obligations of WAPDA under the PPA are secured through the Sovereign Guarantee of the Government of Pakistan under its implementation agreement with HUBCO.

HUBCO plant has operated at an average load factor of 76% and an average complex availability (ACA) of 877. Electricity sold to WAPDA was 2,012 GWh.

Riaz Haq said...

Here's an example from today's Dawn news of ongoing debt crisis in Pakistan's energy sector:

ISLAMABAD: With the circular debt issue still unresolved, three major refineries have stopped oil supplies to Pakistan State Oil and two others have threatened to do the same if their dues are not cleared.

The PSO sent on Wednesday an “SOS” to the prime minister`s adviser on petroleum and ministers for finance and water and power for immediate payment of Rs60 billion to avert a shortage of petroleum products in the country.

In his last communication to the federal government, PSO`s outgoing managing director Irfan Qureshi said: “Attock Refinery Limited, National Refinery Limited and Byco have already discontinued supplies to PSO while Parco and Pakistan Refinery Limited have expressed their inability to continue supplies because of financial constraints. This will ultimately lead to severe shortage of POL products in the country.”

The refineries have taken the extreme step because of PSO`s inability to clear about Rs100 billion dues. The PSO`s own receivables from power sector and the government of Pakistan on account of price differential claims reached Rs181 billion on April 20.

The country`s largest fuel supplier said that from Feb 1 it had supplied oil worth Rs78 billion to the power sector but received only Rs45 billion. The remaining Rs33 billion and the opening balance of Rs148 billion on Feb 1 have left the PSO in dire straits. It has already defaulted on its tax obligations and is on the verge of international default on Rs39 billion in 21 days.

The PSO said it immediately needed Rs60 billion to avoid default on international payments and to clear its dues to tax authorities and local refineries.

Last week, the fuel supplier had expressed its inability to import furnace oil for power generation.

“The circular debt issue has now reached a point where the PSO expresses its inability to be able to continue its furnace oil imports from May onwards.

“With no financial limit available and all our bank borrowing limits exhausted, we have no option, but to suspend import of fuel oil from May 15, 2011 to avoid any default and create a bad image of Pakistan in the international community.”

The government plans to issue term finance certificates of Rs130 billion to the local banks, but no concrete step has been taken because of the absence of the finance minister and finance secretary who have been in Washington for talks with the International Monetary Fund and other lenders.

Because of water and gas shortages, power companies are already resorting to more than five hours of loadshedding which could escalate if furnace oil supplies are affected.

Riaz Haq said...

Express Tribune reports easing of circular debt in Pakistan:

The government has paid Rs120 billion overdue electricity subsidies to improve the financial condition of power companies, leaving it with the option of either letting the budget deficit slip to 6.3 per cent or playing with the figures to restrict it to 5.5 per cent.

The payments would partially improve the balance sheet of the power sector that has been crippled by the government’s inability to pay price differential claims. The arrears that have increased to Rs288 billion are one of the main reasons for the massive power shortfall, recorded at 7,200 megawatts on Tuesday, as companies are not running at optimum capacity. The capital injection will enable power companies to purchase fuel for electricity generation.

The payments have been made to the Pakistan Electric Power Company (Pepco), Pakistan State Oil, oil refineries, power generation and distribution companies. However, these will widen the budget deficit by another 0.7 per cent of national income, torpedoing the revised fiscal framework.

The government that has been struggling to restrict the budget deficit to Rs941 billion or 5.5 per cent of Gross Domestic Product (GDP) is now facing a situation whereby the gap may swell to Rs1,078 billion or 6.3 per cent.

Finance ministry officials said so far the ministry was reluctant to pay its dues because of the negative implication for the budget deficit – the gap between national income and spending. Officials added that the government paid Rs98 billion on Wednesday while the remaining Rs22 billion would be released today (Thursday).

Sources said the finance ministry was considering deferring payment of other subsidies like those for agriculture and fertilisers to the next financial year. There is an option to even defer some of the electricity subsidies of this fiscal year.

Any attempt to play with the figures may invite the International Monetary Fund’s wrath that in the past slapped penalties after noting tempering with budget figures.

According to the Budget Strategy Paper 2011-12, the government will pay Rs186 billion electricity subsidies by June-end. The accumulative power subsidy for this year and the previous two years amounts to Rs306 billion. The finance secretary was not available to comment on the issue.

The circular debt still stands at Rs168 billion even after Rs120 billion payments. The major factor for the debt now is the refusal of provinces to pay their dues to Pepco. The four provinces, Fata and AJK owe Rs106 billion to Pepco, according to official documents. Of this amount, a major chunk of Rs76 billion is due to be paid by the provinces. Punjab owes Rs9 billion whereas Sindh owes Rs37 billion.

The ongoing massive power shortage is partly because of oil and gas shortages and partly because of inefficient power plants. Although the government has paid a handsome amount, there is still a big question mark on the sustainability of the power sector due to resistance to reforms. The government is not ready to completely disband Pepco and it is also not amending the National Electric Power Regulatory Authority Act that is necessary to ensure full power tariff recovery.

Karachi Electric Supply Company’s (KESC) tariff structure is another source of concern. This year alone, the federal government will pay Rs40 billion subsidies to KESC on account of price differential.

The other major factor is longstanding receivables from private consumers. All the distribution companies are unable to recover Rs69.7 billion from private consumers which are overdue from two months to three years, according to the documents.

Riaz Haq said...

"Pakistan’s power shortage an emergency": Khaleej Times

A daily on Monday described the acute power shortage in Pakistan as an “existential emergency” as it called for establishing a national power management plan.

An editorial in the News International noted: “Our installed sources of power generation exceed our power needs and if all were working at capacity we would be a net exporter of power.”

Giving statistics, it said: “Our power shortfall has now reached 5,000 megawatts. We are generating 13,240 MWs against a peak demand of 18,065MWs.

“Industry has ground to a halt; productivity in key sectors like that of cotton goods has dropped almost to zero in places like Faisalabad, the hub of the cotton spinning industry. In Lahore loadshedding has reached 14 hours a day.”

The editorial said that the problem is affecting every province.

It went on to say that at the heart of the matter “lies the inability to resolve the circular debt crisis and an embedded inefficiency in power distribution along with power theft”.

Taking a dig at government announcements to tackle the electricity situation, the editorial said: “We have lost count of the number of prime ministerial pronouncements on the management of the power crisis, the empty plans that never seem to materialise and the grand political statements that this or that much power has been added to the system since this government took office.”

Calling it “an existential emergency”, it added that the country needs a national power management plan.


http://www.khaleejtimes.com/DisplayArticle08.asp?xfile=data/international/2011/June/international_June778.xml&section=international

Riaz Haq said...

Siemens Pakistan chief says 4,000MW of electricity can be produced with $1.5 billion investment that can help overcome energy crisis, according to Pakistan Today:

KARACHI - The prolonged hours of unscheduled load shedding can be brought to an end with just a small investment of $1.5 billion. “Currently, the country is facing a shortfall of 4,000MW in the production of electricity, but this can be overcome by investing only $1.5 billion, which is a small amount compared to the scale of the power crisis that has paralysed the economy and making lives miserable for the people,” Sohail Wajahat H Siddiqui, managing director/CEO of Siemens Pakistan and a member of the Pakistan Business Council (PBC), told Pakistan Today.
The PBC is a body of the elite business groups in the country that holds interactions with government officials, including the president and the prime minister, to find out ways and means to overcome the energy and economy crises and to put the economy on the path of stability. Siddiqui said that under the short-term strategy, an investment of $1.5 billion is required to produce 4,000MW of electricity that would end the shortfall in production and demand.
“I’ve have submitted a comprehensive report to the government from the platform of the Pakistan Business Council to overcome the energy crisis on the short-term and long-term basis,” he added. He said that under the short-term strategy, the upgrading and overhauling of the existing power plants would be sufficient to enhance output of electricity by 4,000MW, adding that for the long-term plan, the government should focus on the generation of electricity from wind, solar, hydel and gas.
“Power generation from the wind and solar technology is expensive, but this technology is essential to develop a mixed energy culture,” he said. “If the crude oil prices shoot above $200 to $250 a barrel in the future, how would the economy and consumers be able to face this crisis?” he questioned, adding that in this situation, alternative energy resources prove helpful to generate low-cost electricity.
Siddiqui said that the government should make serious efforts to develop the energy sector, which has been neglected in the past, creating an unprecedented energy crisis in the country. “Had the previous governments developed big dams and established new power plants in the past to generate additional electricity and to meet the country’s growing demand, the country would not have been facing this crisis now,” he argued.
He said that Pakistan is suffering a loss of about two percent of the GDP a year because of the energy crisis that triggers unemployment, affects industrial production, tax revenue collection and paralyses overall economic activity in the country. “A will is required to eliminate the electricity shortage and to ensure a smooth sailing of the ailing economy,” he said, adding that the PBC has decided to play a crucial role to support the government in overcoming major problems.


http://www.pakistantoday.com.pk/2011/05/%E2%80%98only-1-5bn-needed-to-bring-end-to-power-woes%E2%80%99/

Riaz Haq said...

Increased load shedding in Pakistan alone has cost 400,000 jobs in recent years, according to the World Bank. Although the World Bank report does not address it directly, the anecdotal evidence suggests that almost all of Pakistan's job growth for the decade occurred from 2000-2007 when the economy showed robust gdp growth. During 2000-2007, Pakistan's economy became one of the four fastest growing economies in Asia with its growth rate averaging 7.0 per cent per year for most of this period. As a result of strong economic growth, Pakistan succeeded in reducing poverty by one-half, creating almost 13 million jobs, halving the country's debt burden, raising foreign exchange reserves to a comfortable position and propping the country's exchange rate, restoring investors' confidence and most importantly, taking Pakistan out of the IMF Program. Contrary to its public criticism of the Musharraf-era economy, the preceding facts were acknowledged by the current government in a Memorandum of Economic and Financial Policies (MEFP) for 2008/09-2009/10, while signing agreement with the IMF on November 20, 2008.

http://www.riazhaq.com/2011/09/pakistan-tops-south-asia-jobs-growth.html

Riaz Haq said...

Here's an excerpt from The Economist magazine on Pakistan's energy crisis:

SUMMER in the plains of Pakistan is excruciating enough without the added joy of 20 hours of power cuts a day. Earlier this month protesters in several towns in Punjab, Pakistan’s wealthiest province, smashed windscreens, blocked motorways, shut down markets and set fire to the offices of parliamentarians and an electric utility. They clashed with police who brought out handcuffs and tear gas and fired live rounds in the air.

It was a reaction to electricity shortages that had plunged parts of the province into darkness and scorching heat. At one point the gap between supply and demand hit 7,500 megawatts (MW), or nearly 40% of national demand.

Under the current government, the power sector has neared the top of a list of security, political and foreign-policy problems that includes some heavyweight contenders. Last week’s confluence of events once again underlined how easily Pakistan’s power sector can slip into collapse. The system’s many weaknesses find it all too easy to conspire. Cool weather in the north meant a reduced flow of hydroelectricity. Demand shot up as summer temperatures further south soared into the forties and air-conditioners strained to keep pace.

Meanwhile, several private power producers had to halt or slash production because the state-run power purchasing company hadn’t paid them. They had not been able, because the biggest consumers (especially provincial and federal governments) had not paid their own electricity bills. The bills that were paid are not enough to cover the cost of generation.

This so-called “circular debt”, currently about $880m, is an ongoing problem. The government usually bites the bullet, as it did this time, by paying off a portion when power producers are about to sue for default, enabling them to start generating again—for the moment. What remain unaddressed are the structural issues that cause the debt to pile up again: poor recovery of dues (receivables stand at $4 billion), electricity theft, transmission losses, reliance on imported oil and politically sensitive subsidies for certain groups. Perpetuating all of this is a lack of efficiency and co-ordination across a maze of state-owned agencies including a power purchaser, distribution and generation companies, a regulator and various ministries. The gap between the effective cost of generation and payments received is estimated at $12 billion over the past four years.


http://www.economist.com/blogs/banyan/2012/05/pakistan%E2%80%99s-energy-crisis

Riaz Haq said...

Here are some excerpts of an interesting Op Ed in The Nation newspaper by former finance minister Shaukat Tarin:

Despite all the gloomy news and events that has started to define Pakistan, our national resilience remains intact. However, the question that is one every one’s mind is for how long?

Let’s start with the positives (yes there are always some!) of Present Day Pakistan;

• CP Inflation while high is showing signs of becoming range bound;

• Foreign Remittances continue to rise (the PRI scheme launched under my stewardship has borne fruit with remittances expected to cross the $l2b annual mark this year);

• We have finally started to debate/define our role in the devastating ‘War on Terror” and the end game of Afghan conflict has started to be played out.

• Pakistan’s banking system remains insulated from the Western banking meltdown.

• Booming Agrarian economy, despite devastating floods; with corporate sector moving into dairy, live-stock and value added processing.

• While most of the rest of the world is ageing our population is getting younger

• Democracy is still holding on!

However, we are far from the country we all aspire. The negative list (so to speak) is long, makes a somber reading, but largely includes:

• Lack of governance and transparency (lack of meritocracy).

• Unrelenting and crippling energy shortages.

• Lack of Scale/infrastructure to support GDP growth.

• Security and Law and order situation (Perception twice as worse as reality with the reality bad enough especially in Karachi and Quetta)

• Weak Social Sector reforms/indicators.

• Increasing friction amongst state institutions.

---
... the economic and social sector performance of Pakistan has also been severely impacted by the following:

1) Inability of the successive governments to balance their budgets by increasing tax to GDP ratio, reducing non-development expenses and losses of the Public sector enterprises.

2) Negligible expenditures on education and health sectors to develop our most important asset i.e. human resource.

3) Creating a competitive environment of high economic growth by focusing on the productive sectors of our economy such as agriculture and manufacturing, and

4) Focusing on infrastructure and energy sectors to facilitate the economic growth.

Whereas, we have seen efforts in the past to address these weaknesses they have been at best weak and far between.

The present economic scenario is again infected by the same weaknesses i.e. large fiscal deficits, low expenditure on education and health, chronic electricity and energy shortages, lack of focus on the productive sectors resulting in high inflation, high unemployment and low economic growth. We all want a Pakistan which is economically prosperous, institutionally resilient and strategically oriented. In essence, we want to make Pakistan an economic welfare state. In my view, a key pre-requisite for an Economic Welfare State is to ensure that a country experiences equitable and sustainable growth for a prolonged period of time. Look at the examples of India and China where uninterrupted economic growth has changes the whole value proposition of these countries.
------------
To reduce our fiscal deficit we will have to increase our taxes. As I have said it many a times, all incomes will have to pay taxes and there cannot be any sacred cows. Agriculturists will have to pay their taxes and so should the retailers, real-estate developers stock-market and all professionals. Our tax to GDP is woefully inadequate at 9pc, where Sri Lanka is 17pc, India 19pc, China 21pc and Turkey 33pc. Before I left the government, there was a tax plan in place, which needs to be implemented. It will require a strong political will.....


http://www.nation.com.pk/pakistan-news-newspaper-daily-english-online/business/25-Nov-2012/economic-challenges-for-pakistan-going-into-2013

Riaz Haq said...

Here's a News story on automatic meter reading (AMR) roll-out in Pakistan:

ISLAMABAD: The United States Agency for International Development (USAID), in its effort to assist government-owned power distribution companies in loss reduction and revenue enhancement, is in the final stages of rolling out a nationwide installation of Automated Meter Reading (AMR) projects.



According to a press statement of USAID issued here on Thursday, initially, the project would be targeting areas with high thefts and high line losses. The AMR would provide highly accurate electronic meter readings with very little human intervention, using computer technology to transmit meter readings data via GSM/GPRS and radio frequency.



This would help distribution companies in monitoring the energy consumption trends among different consumer categories, understand consumer patterns, reduce electricity losses and increase their revenues.



The installation of AMR meters would start in the first quarter of 2013. With the intervention approaching its installation phase, the USAID Power Distribution Programme organised an AMR solution requirements workshop in Lahore. The main objective of the workshop was to better understand and gather distribution companies’ business requirements.



AMR project teams from all five distribution companies (Islamabad Electric Supply Company, Peshawar Electric Supply Company, Lahore Electric Supply Company, Hyderabad Electric Supply Company and Multan Electric Power Company) actively participated in the workshop.


http://www.thenews.com.pk/Todays-News-3-154887-USAID-to-roll-out-largest-automated-meter-reading-project-in-Pakistan

Riaz Haq said...

Here's a piece on Pakistan's energy crisis:

Energy and Security: Natural Gas and the Example of Pakistan
By Paul Sullivan,
Georgetown University
I recently got a question the other day about Pakistan. It is having a serious electricity crisis. One of the solutions proposed to me was that a pipeline be built from a neighboring country, Iran, which has a lot of natural gas in order to fuel the power stations of this South Asian state.
Fuel is not enough.
The electricity generating stations in Pakistan need to be better maintained. Many plants are simply not running due to bad maintenance. More people need to be paying their electricity bills. The pricing of electricity needs to be more rational. Without the right amount of payments coming into an electricity company, even if it is a public sector company, the company cannot remain solvent and well run for long. Pakistan’s electricity is produced by two public sector utilities and about 20 plus independent power producers.
Part of the problem with this in some developing countries is that in the villages and even the large cities one can see thousands of “informal” wires being connected from the electrical poles to houses and businesses without any meters (or even safe connections, but that is another story). Income losses from essentially stolen electricity are gigantic.
Pakistan’s electricity demand growth of about 10-11 percent per year is overwhelming its supply of electricity.
About 55 percent of Pakistan’s people use biomass, such as cow dung, other agricultural waste, garbage and more to heat, cook, etc. These people will likely have an increasing want for electricity connections in the future. Pakistan will not develop even near to its potential if this huge proportion of its population is not connected with electricity, either on a grid or via distributed energy systems at the village and town levels.
These distributed systems could use the vast wind, solar, geothermal and other renewable energy resources available, but severely underutilized in the country. Setting up distributed power systems in villages and small towns could also prove to be a lot cheaper than extending Pakistan’s often shaky and overused grid....


http://ubpost.mongolnews.mn/?p=4213

Riaz Haq said...

Here's a Daily Times report on Pakistan settling "circular debt" owed to IPPs:

In order to eliminate circular debt, the government has released Rs 362 billion to the Independent Power Producers (IPPs), out of which four IPPs announced that they have received a total sum of Rs 116.826 billion as a part of their overdue receivables, according to the Karachi Stock Exchange (KSE) notice released on Tuesday.
Five IPPs out of 19 others, in Memorandums of Understanding (MoUs) signed between government and IPPs, including Hub Power Company Limited (Hubco), Nishat Chunian Power Limited (NCPL), PakGen Power Limited (PKGP), Kohinoor Energy Limited (KEL) and Nishat Power Limited (NPL) have announced officially in notices to all bourses of the country that they have received around Rs 116.826 billion from Central Power Purchasing Agency (CPPA), Water and Power Development Authority (WAPDA) and National Transmission and Despatch Company (NTDC).
Hubco remained prime beneficiary as the company stated in a letter to the KSE that the company has received overdue amounting to Rs 75 billion out of Rs 83.2 billion (overdue as of May 31, 2013) for Hubco and Rs 17.4 billion for Narowal Plant from WAPDA and NTDC, bringing the total to Rs 92.4 billion.
Hubco announced that the company has paid Rs 55.8 billion to Pakistan State Oil (PSO) as agreed under the settlement arrangement.
Hubco has entered into three MoUs with the government as required by them for the settlement of agreeing to convert Hub plant from oil to coal, extend the credit period for its Narowal Plant from 30 days to 60 days and to endeavour to operate the plants at full capacity.
Under the MoUs, IPPs also agreed to achieve their maximum generation capacity and provide 1,500 megawatts (MW) to 1,700 MW to the national grid before Ramazan, four IPPs including Hubco, Lalpir, Pakgen and Saba Plant, have agreed on conversion to coal-based power generation within 18 months, extend credit period from 45 days to 60 days and reduce interest rate on late payments by public sector power companies.
Similarly, NCPL announced that the company has received overdue receivables amounting to Rs 6.86 billion from CPPA without any reduction in existing delay mark-up rate of existing 4.5 percent to 2.5 percent as against expected cut of 2.0 percent from 4.0 percent to 4.5 percent.
Likewise, PKGP also informed the KSE that the company has received overdue receivables amounting to Rs 6.982 billion from CPPA at existing delay mark-up rate.
Also, KEL announced in a letter to KSE that the company has received overdue receivables amounting to Rs 3.504 billion from WAPDA.
Muhammad Affan Ismail of BMA Research told this scribe that the fund injections (cash or otherwise) are a short-term solution and have no long-term implications on operational factors or returns to investors. Best would be to recall the Rs 82 billion Tem Finance Certificates (TFCs) issued last year by the government in order to help solve the power crisis, he added.
NPL has announced that it has received overdue amounting to Rs 7.080 billion.
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Naveed Tehsin of JS Research believes that PSO stands out as a key beneficiary from the retirement of the circular debt as its receivables and payables to local refineries have sharply declined to Rs 79 billion (down 54 percent) and Rs 9 billion (down 66 percent), respectively.
Tehsin expected that receivables would further decline by Rs 48 billion after the issuance of Pakistan Investment Bonds to PSO.


http://www.dailytimes.com.pk/default.asp?page=2013%5C07%5C03%5Cstory_3-7-2013_pg5_1

Riaz Haq said...

Privately-held KESC has devised a collective reward and punishment scheme to deal with dead-beats and thieves in Karachi. Areas where there is 90% money recovery see almost zero load shedding, 80% get a couple of hours of power cuts and those with less than 50% endure very long hours of black-outs. http://www.gulf-times.com/pakistan/186/details/358456/pakistan-utility-company-fights-to-power-karachi