Volume 22 Issue 10, October 2018
 
 

 

Pakistan has been the largest recipient of funding from the World Bank after China and India. The depth of this relationship is fairly deep and covers all the major economic sectors, such as social sectors, infrastructure, finance, banking, capital market, fiscal, monetary and trade policies, banking, agriculture, livestock, irrigation, energy and many more. The Bank’s support has led to the creation of a vast pool of productive assets in many of these sectors and design and implementation of critical policies based on international best practices and has contributed to significant capacity building in areas where none existed previously.

That the World Bank’s support has not led to improvement in the country’s economic conditions is not tenable. Although there are a number of areas where the Bank’s strategy and policies can be criticized, its overall contribution over a period of seven decades of the country’s existence is remarkable.

Here we would examine in some detail an example of the World Bank’s support that has contributed immensely to the development of the economy. The reasons for our choice would become evident during the course of this discussion.
In 1988, the Cabinet decided that the power sector must be taken out of government control and gradually shifted to the private sector. The required investments for rising power demand were not possible in the public sector. For this reason, the power wing of WAPDA was disbanded and, in the first phase, power generation was permitted by the private sector. NEPRA was established as the regulator in anticipation of the private sector playing the lead role in the sector. Alongside, the Pakistan Electric Power Company (PEPCO) was established in 1997 to spearhead the process of corporatizing the power wing into eleven entities: three Gencos, nine Discos and one transmission company. Ten long years were taken by the authorities to complete this job, some of which was justified but mostly it was inertia and powerful interest groups that resisted the process.

Even as this was done, the process was misaligned and derailed so that the next step of privatization could not be initiated. IPPs were punished, higher tariffs were deliberately stopped from being passed on to consumers and the payment of required subsidies was invariably delayed. NEPRA started giving nine tariffs, one for each disco, but the government decided to apply a single tariff across the country. This meant, the minimum determined tariff (MDT) of the most efficient disco, such as Islamabad, was applicable across the country. This resulted in huge subsidies for consumers payable to discos.

The term tariff differential subsidy (TDS) was added to our lexicon, signifying the difference between the tariff determined by NEPRA and the MDT. Consequently, large overdues, later known as circular debt (which was another new term, which we have already discussed in earlier parts) started emerging. Under the Fund program, TDS was both reduced and subsequently settled during the year. Afterwards, circular debt reflected losses, non-recovery of dues and GST paid on uncollected bills. Nothing has damaged the country’s finances more than this distorted system of tariff setting, the resulting subsidies and CD (circular debt). Even to this day, the system remains on the edge.

A regulator was established in 1997 known as the National Electric Power Authority (NEPRA), which laid the basis for determining many missteps; bad sequencing has been the main wrong done under the policy. The regulator was created when ruins of corporatization had not even taken place. In 2007, when the process was completed, the country saw the regulator awarding 8 tariffs which were not implemented and the lowest tariff was introduced as a uniform tariff in the country. This gave rise to the most lethal ill the country had ever known, the tariff differential subsidy (TDS).

The private power sector in Pakistan can be faulted in many ways but it is hard to counter the argument that, without it, the country would have been living under conditions of huge levels of load-shedding that would have seriously undermined our progress, as was the condition at many points during the preceding 30 years. It is the natural course to follow wherever one goes and examines how public utilities have been transferred to private ownership. We moved in this direction because of the way the world was transforming around us. The erstwhile WAPDA was not in a position to fund the power requirements of the country which were growing because of high economic and population growth rates. The IFC’s role must also be noted.

 
 

 
 
     
The writer is a former finance secretary. He can be reached at waqarmkn@gmail.com    
 
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