Daily Times Editorial June 16, 2013

Energy plan The government is already grappling with the energy crisis. Reports say a three-pronged plan to tackle the energy deficit has been worked out. Essentially the plan envisages the retirement of the Rs 503 billion circular debt of the energy sector within two months and bringing 1,500 MW generation into the system through the IPPs. Rs 326 billion has been earmarked as partial retirement of the circular debt by June 30, of which Rs 200 billion in cash will come from the federal budget to pay the IPPs and PSO, which have borrowed from the banks to finance their operations but are struggling to repay their bank borrowings. Another Rs 126 billion will be generated through bonds issued by the Oil and Gas Development Corporation (OGDC) and Pakistan Petroleum Limited. These bonds will carry market-based interest rates. The remaining Rs 177 billion of circular debt is owed to public sector corporations that have countervailing liabilities with the government. This amount will be retired through a book adjustment in July. What will follow this is a cascaded elimination of untargeted subsidies in order to free up fiscal space in the medium term for the government to carry out affirmative action in favour of the poorest sections of society. Finance Minister Ishaq Dar has followed through on his pledge in his post-budget press conference that he will talk to the IPPs to reduce their interest rates on their outstandings from its present KIBOR plus four percent to KIBOR plus two percent to ease the government’s burden and in the light of their own borrowing rate from banks of around KIBOR plus 2-3 percent, given that such outstandings come with sovereign guarantees and the government is now engaged in paying them over the next two months. This is exactly what Mr Dar has done in a meeting with the IPPs. The finance minister also requested the IPPs to extend their credit period from 45 to 60 days to further ease cash flow constraints. We await an announcement that the IPPs have reciprocated the government’s active intervention on their behalf with such an eminently reasonable concession. While the government wrestles with circular debt, Prime Minister Nawaz Sharif has approved a power tariff hike of Rs 2.50 per unit to be implemented from July 1. He was chairing a meeting to discuss the energy plan, the agenda of which discussed power generation, theft, a uniform tariff and line losses, in short all the afflictions of the energy sector. According to the Water and Power Ministry, the subsidy on electricity comes to Rs 350 billion, based on the fact that electricity is bought at Rs 14 per unit and supplied to consumers at Rs 9 per unit. The tariff hike of Rs 2.50 per unit is expected to save Rs 100-150 billion. A comprehensive energy policy is expected by month’s end. Difficult as the economic situation is generally, and critical in the energy sector, the government’s energy plan does have inflationary implications. The example of raising GST by one percent in the budget, setting off an escalating series of price rises in petroleum, CNG, transport and everyday use items is an indication of what will follow the power tariff rise. Already, in a suo motu action, the Supreme Court has grilled the government about the rise in petroleum and CNG prices in the wake of the increase in GST. The objection by the court revolves around the fact that the Finance Bill, of which the hike in GST is a part, has yet to be passed by parliament. The court wanted to know how this measure could be implemented in the shape of the increase in POL and CNG prices even before parliament ha s passed the Finance Bill. After listening to arguments by the Attorney General and the counsel for OGDC regarding the measure being covered under the Provisional Collection of Taxes Act 1931 and the declaration by the finance ministry, the court did not go so far as to issue a stay order against the price rises, but warned before postponing the hearing that it could suspend the FBR’s notification issued without parliament’s approval unless satisfied on this count. This is the first indication that no one should be under any illusions that the independent judiciary will go ‘soft’ on the new government where adherence to the spirit and letter of the law is concerned.