Makeshift arrangements

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With power sector receivables now exceeding Rs590bn, the ugly face of the chronic circular debt is more severely affecting public life in multiple ways. It has gone beyond calls on sovereign guarantees and credit ratings to nationwide blackouts and dry-out of the supply chain. The situation contradicts the government’s efforts to play down its failure to resolve the longstanding structural issues. The fire-fighting approach to tackling crisis after crisis, coupled with ever-growing tariffs and number of taxes, has taken its toll on the government’s performance. Almost the entire energy sector — being largely run on an ad-hoc basis as the government played around with filling top managerial and regulatory positions over the past 18 months — now has second- and third-tier executives and non-professionals at the top slots.

For example, Ogra, which lacked quorum in the absence of three out of its five members for a long time, has practically become non-existent with the forced removal of its chairman in the run up to the petrol crisis.

Likewise, the petroleum secretary is also under suspension. So is the case with the head of the directorate general of oil responsible for Newspaper.EBR:Latethe oil supply chain. Both these positions have been assigned to junior officers who can easily be leveraged by the PM’s office and the ministers.


Both water and power and petroleum ministries are being run by officials in grades 20-21 against the grade 22 positions


The case of PSO — a firm with Rs1.6trn in annual revenue — is no different. It was being run for 17 months by an acting managing director who was removed along with seven other top executives in the wake of the petrol crisis. These included all those who had been flagging the looming oil crisis for months. It is now being run unofficially by former PIA officials.

As if that was not enough, the stop-gap hierarchies of the power generation system and transmission network have also been removed for two nationwide blackouts.

Consequently, both critical energy ministries — water and power and petroleum — are being run by additional secretaries in-charge or acting secretaries in grades 20-21 against the grade 22 positions. Meanwhile, both the ministries have federal ministers, advisers to the prime minister, special assistants, ministers of state, and parliamentary secretaries on the political side.

On top of that, the additional secretaries from the PM’s office directly exercise executive authority in running the day-to-day affairs, creating many centres of power.

No wonder then, the lower staff of both the ministries remains unclear about the direction of the government. The billing-to-recovery ratio of less than 89pc in the power sector and transmission losses of around 20pc are just a few manifestations of this institutional confidence crisis. The financial gap returns again and again and is filled by increases in the electricity tariff to meet IMF conditionalities.

To make things more difficult, the ministries of water and power and of petroleum remain on different wavelengths regarding upcoming major development projects, like the use of LNG, domestic natural gas and coal for power generation.

Power generation of about 1,000MW, earlier proposed to be based on smaller fields of unprocessed gas, have been shelved after 18 months. It is also not yet clear if another 1,000-1,200MW power capacity of rental power projects could be utilised before the upcoming summer.

Meanwhile, the lack of coordination has led to the putting of 6,600MW of coal-based power projects at the Gadani Power Park on the back burner. So was the case with coal-based power projects at three other locations in Punjab. These have been replaced with a proposal to establish 3,600MW LNG-based power projects in Punjab, for which arrangements have yet to be made and agreements are yet to be signed.

The ministers, however, argue that declining prices of LNG in the international market have created a window of hope for a cheaper energy source. Hence, an adjustment in the planning process had been made to accommodate LNG-based power projects instead of coal-based ones, and an upfront tariff of Rs8.85 is being offered to them.

Despite all the policy inertia on the part of the cabinet, the two back-to-back investigations into the petrol crisis attributed a significant part of the problem to the inherent circular debt, but exonerated all the politically appointed ministers and advisers in petroleum, power and finance. None of the investigations took into account the official record that a meeting of the ECC on January 10 was briefed about 4 and 10 days of petrol and diesel stocks respectively, and that it did not take any decision.

The ECC also did not consider that PSO was in continuous defaults since September-October due to short payments by the power sector. Instead, the power ministry claims credit to have saved over Rs96bn as a result of lower generation and lower furnace oil price from October to December, even though the savings — in the shape of closure of turbines — is considered an economic loss arising out of suspension of commercial activities.

Interestingly, the investigation team was provided with a record suggesting that on December 15, PSO had already defaulted on Rs37bn on international letters of credit FE-25 trade financing and to refineries. On the same day, it also defaulted on $32m to Kuwait Petroleum.

On December 16, the finance ministry was informed that “PSO had reached a point where these continuous defaults are affecting white oil imports as well and dry out of petrol is around the corner if Rs100bn is not given to PSO”. All these facts have been camouflaged in the smokescreen.