And, above all is the declining quality of state governance and the threat to the nation's economy in the wake of the present political uncertainty reflected in the nervous stock exchange. The last two elements make the task even more difficult.
The task ahead for the prime minister, to set the house in order, is an extremely challenging one. In the hierarchy of the new political leadership, prime minister Abbasi is the most competent to take up this challenge, considering his academic qualifications, foreign exposure and corporate background with proven achievements. But to make things happen he needs a matching team of professional managers who can deliver on his commitments and ambition.
Prime Minister Abbasi has set the ball rolling in the right sequence of priorities. Early this week, he asked colleagues to find out the reasons behind the technical and distribution losses and devise measures to reduce the circular debt in the energy sector.
He directed the finance and power divisions to jointly work out revalidation of the individual factors contributing to the circular debt, and "focus on improving efficiencies and out-of-the-box solutions for resolving the issue."
It's on record that when the government took over government affairs, it inherited a circular debt of Rs 480 billion. The government, however, managed to clear the debt haunting the entire chain of the energy sector from oil market companies to power distribution companies. It established a special unit, Power Holding Company Limited, to cope with the issue of circular debt. Yet, the circular debt again rose to Rs 800 billion, compared to Rs 600 billion a couple of months previously.
The International Monetary Fund warned the government of relapse in arrears. In its report, the IMF asked the government to "swiftly address the resumption in the accumulation of arrears to ensure a financially viable and growth-supporting power sector."
Prime Minister Abbasi directed each power distribution company to come up with 'workable solutions' to further reduce line losses. He also directed the officials to plan for conversion of agricultural tube-wells to solar energy in view of the sustainable power supply and reducing the burden of subsidies. "This shall be started from the province of Balochistan, on priority," he said. "Ensuring energy security is the highest priority of the government and provision of clean and affordable power to consumers is the key to development," he added.
The government may decide to replace all inefficient thermal power stations with efficient regasified liquefied natural gas (RLNG) plants, to be set up as independent power plants (IPPs), in an effort to provide low-cost sustainable electricity, informed sources say.
The prime minister is pressing for an end to the consumption of furnace oil, diesel and coal in power production and banking only on the use of RLNG. A plan is being framed in the backdrop of Pakistan's consistently high oil import bill, as well as the expensive electricity generation from oil. The serious threat is that in the wake of the present political priority of the ruling leadership towards vote politics at the expense of state governance, there is growing danger that the more mundane matter of running the affairs of state will drift and may spin out of control. That could have far graver implications and consequences than any of the other problems.
Pakistan's fiscal discipline is the most vulnerable, notably the energy sector and the mounting loans. Already, signs are that the power sector is accumulating circular debt faster than at any time in the previous three years. Figures reported recently suggest it could have touched Rs 800 billion, with the bulk of the accumulation coming in the last seven to eight months alone. The timeline coincides with the start of the ruling party's court-related troubles.
The fiscal framework and the external sector are showing growing vulnerabilities that could send consequences cascading through the economy precisely at a time when the planned handover of power to an interim government is supposed to take place.
The vulnerabilities are serious as they could choke the power system, cause a disorderly plunge in the exchange rate, aggravate inflation and destabilise financial markets. The second round of consequences could spark a large-scale dollarization of savings, as well as capital flight. Much of this has happened in the past as the incumbent government neared the end of its term and those at the helm lost their focus in the midst of the political storms. Each successive government in the past claimed to have inherited empty coffers, a beaten economy, large-scale load-shedding, depletion of funds and the need to run to the IMF for a bailout package. That story is now set to repeat itself and its basic elements are already beginning to appear. It is a herculean task to reverse this trend. But it is essential in national and in the interest of the incumbent government that this trend is not repeated and that this time the focus on governance is not lost.
Prime Minister Abbasi is the best bet for the government to reverse this unhealthy trend. The incumbent government will do good to the nation and to itself if it could isolate state governance from vote politics, as is in practice in nations which have excelled in economy, politics and state governance. Let the party deal with the political storms and vote politics, whereas the prime minister is truly empowered to manage state governance in a professional manner with the best of statesmanship.
Prime Minister Abbasi appears to have recognized the priorities and his responsibilities. As one of his first acts, he has merged the sensitive ministries of petroleum and power as one Ministry of Energy and opted to retain it under his direct control. Also, he has kept the crucial ministry of planning entrusted with the CPEC co-ordination under his control.
This places a heavy responsibility on him, but an inevitable one to ensure that the crucial power system remains operational in spite of stresses on the fiscal framework and CPEC remains on track. These are difficult times for Pakistan considering the severe domestic issues and fast changing global political dynamics from which Pakistan cannot remain isolated, especially from the happenings in the Middle East and across our borders. All of this demands political maturity and statesmanship from our political leadership in power and those in the opposition. It is expected that both will come up to public expectations in the best national interest.
(The writer is former President of Overseas Investors Chamber of Commerce & Industry)
Copyright Business Recorder, 2017