Bring on the bandages
IF reports are true, and there are lots of indications that they are, the government is getting ready to lift more than a couple of bucketfuls from the banks to square all receivables in the power sector and prepare to bring loadshedding down in the time leading up to elections.
Remember the situation in the 2008 elections, when loadshedding was compounded by gas shortages and severe wheat price hikes? That state of affairs could have been a lot worse had the interim government passed on the increases in oil prices to consumers.
Instead, they held prices steady at the pump, and paid for the difference by printing money, building up a tab of almost Rs700bn by the time the fiscal year ended.
It’s not unusual for governments to spend heavily in the run up to an election, nor is it unusual for them to pay for this through borrowing and printing money. But in this case, it’s important to emphasise that the exercise to borrow money to the tune of Rs450bn, according to a report published in this paper, is coming at the end of five years of complete inaction on a very serious crisis.
That makes the comparison slightly different, since the government of Gen Musharraf racked up a healthy debt tab for the incoming government in an effort to avoid a politically catastrophic oil price increase that was peaking right when the general’s political crisis was also reaching a crescendo.
But this government has shown a much greater willingness to adjust oil prices than electricity prices. Very early in its career, when Mr Naveed Qamar was the finance minister, oil prices were linked to international prices, and a massive increase was passed through.
It was hailed as a courageous move at the time by reformers, who oppose the use of subsidies to manage prices. From that time onwards, there has been no such thing as circular debt in the petroleum business.
The power sector has been a different story though. Here the circular debt keeps cropping back up again chiefly in the furnace oil segment, and because there is a difference between the notified and determined tariffs of electricity — meaning that the government is forcing the power bureaucracy to sell the electricity at rates far lower than those determined necessary for ‘cost recovery’.
The borrowing being arranged now, and which will undoubtedly rise to jaw-dropping proportions by the time the next government is sworn in and the fiscal year closes (it looks as if the two events will happen close to each other) cannot be said to be the result of an external crisis.
This is a five-year-long affair that has been treated in piecemeal fashion over the years and has grown into a monstrous crisis due to negligence and misgovernance.
So if the general’s government created a wretched inheritance for the new democracy by borrowing to avoid a tough decision, this government is creating an even more wretched inheritance by leaving the rotten fruit of its own neglect for the incoming folks, in addition to a large sack of debt.
Of course there are powerful vested interests involved in the power sector. The monopoly over daily information regarding the sector is an important source of leverage that seniors in the bureaucracy have over their ministerial superiors.
Many times the elected representatives have found themselves stonewalled when asking perfectly clear questions, such as how the receivables have been calculated.
This is important because it is one of the biggest reasons why we have such massive amounts of money owed to the power bureaucracy that cannot be collected.
The conventional view says that this money is owed by government entities or by influential people who are untouchable when it comes to recovering the money they owe. This is partially true, but there is another side to the story.
The bills issued by the power bureaucracy to the bulk consumers are rarely metered. You can collect taxes on a presumptive basis, and even here there are problems and the taxpayers complain, but issuing electricity bills on a presumptive basis is sheer nonsense. Many of the bills are easily challenged in court if pressed too hard, and once it lands up in court you might as well just write that money off.
No wonder the power bureaucracy is able to show such large receivables. If audited carefully many of these bills show enormous irregularities, and when you run the arithmetic on how they’ve been aggregated, you’re likely to see even more irregularities.
So when they tell you they’re owed ‘x’ amount from that government department, you can either take their word for it or go take a walk because the information you need in order to check the veracity of their claim will not be available anywhere.
In this way, arbitrary numbers get cooked up and presented in an ad hoc manner to tell any story that you want to tell. So, for instance, if you want to know why the power sector is so illiquid in spite of all the money that gets poured into it, you will be told it’s because the government doesn’t pay its bills, or that there are influential people who don’t pay, or that the price of generation is always Rs3 above the price they are able to charge, or whatever suits the bureaucracy’s fancy.
The truth, if there is such a thing, is probably a complex mix of everything they tell you, and a whole lot more. But who really cares about the truth anymore. Solving problems is far too complex — managing them is easier.
Five years at a time works when you’re dealing with large strategic geopolitical problems that need to be solved slowly, but it doesn’t work when you look at the state of disrepair the capillaries of state have fallen into. So bring on the bandages.
The writer is a Karachi-based journalist covering business and economic policy.