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ANY new government coming to power in Islamabad is well advised to steer clear from the advice offered by the bureaucracy. These are some of the most entrenched and costly rent-seeking interests in Pakistan’s political economy, and they are adept at misleading the political leadership into thinking that there is no way out but to pass the accumulated weight of their own inefficiency and ineptitude to the citizens.
This is how we get ‘solutions’ suggested by them that recommend passing the accumulated circular debt to the consumers in the form of higher power tariffs. Or to pass through the growing revenue requirement of the public-sector gas companies on to gas consumers, and in the petition that the companies themselves drew up, they asked for the poorest segment of the consumers to bear the weight of this increase! It is also how we get repeated requests from the management of the public-sector enterprises such as PIA and the steel mill for bailout packages, equity injections or requests for parking their accumulated losses in some external publicly owned entity so their balance sheets can be cleaned out and they can start again with a clean slate.
Very persuasive arguments are advanced with these proposals, and those behind them have enough experience of the matter to conceal any information that might suggest alternative courses of action, or obfuscate requests for more data that the ministers might use to explore more innovative solutions. They also deploy subtle pressure tactics — ‘without this bailout we will have no choice but to shut down operations’, or ‘we are already behind in the payroll expenses; any further delays can result in unrest from the unions’, or ‘the system will collapse under the weight of a second circular debt if this request for a price increase is not entertained immediately’.
For more than 10 years, we have seen these tactics being used. Few are more skilled at them than Wapda or its progeny, the power generation and distribution companies that operate under Pepco. For a decade, Wapda has milked two governments successively in the form of the Neelum Jhelum surcharge for building a run-of-the-river hydropower project in AJK. The strategy becomes difficult to exit from once billions, and then hundreds of billions, of rupees have been poured into a project that sees endless cost escalations, because having sunk that much money into it, the government becomes a hostage.
For more than 10 years, we have seen these tactics being used. Few are more skilled at them than Wapda or its progeny.
Successive requests for more money become hard to reject, because the cost of shifting from one project executor to another is too high. They know this. They also know how to talk sweet in the early days, when it is time to cajole the government to agree to the project, and then stiffen the rhetoric as the billions poured in mount and a change of course becomes less and less possible.
Likewise with the circular debt, or inability to meet operating costs with the funds recovered from the operations of an enterprise. The bureaucrats will have elaborate excuses as to why they are unable to make the recoveries required to arrest the rise of the circular debt. Once the debt reaches a point where it starts to threaten continued operation of the power or gas system, pressure will mount on the government to extinguish the entire debt in one mammoth exercise.
The PPP government conducted at least two such large exercises, only to see the debt return. The PML-N- government carried out the largest such ‘bullet payment’ to retire the debt in one go and vowed to ensure they would not allow its resurgence, only to leave behind an even larger mountain of circular debt.
It would be easy to simply blame those two governments for incompetence. It will be much harder to avoid repeating their mistakes, which is what the PTI government must do if it is to live up to its tall campaign promises. At the moment, it is being wooed by the power bureaucracy to simply bundle the cost of the entire mountain of circular debt and pass it through to the consumers, but it would be a big mistake to acquiesce in this, for the simple reason that this will buy little more than time.
The root cause is not any flaw in the power tariff, or any delays in notification. Those are problems, undoubtedly. The root cause is the laziness and ineptitude of the power bureaucracy that works at its best when it is inventing excuses for its incompetence. Ask one simple question: how was the accumulation of the circular debt kept restrained in the years 2015 and 2016? Ask also for year-wise data on recovery rates and line losses from the past 10 years, and notice where the highest point is (reportedly in these same years, when line losses fell below 18 per cent and recoveries hit 93pc). Then ask: how was this achieved?
Once you get satisfactory answers, offer them a proposition. Bring recoveries and line losses back to this level first, keep them there for three months, revert with a full detailed report, and if you are successful, we can talk about subsidy payments and tariff hikes. Never give the bureaucracy what they ask for upfront, without first demanding from them clear and upfront performance benchmarks and a running start on these. Those who resist are the ones you will not need as you push ahead with reforms.
All governments learn by the end of their tenure that the bureaucracy is interested in only one thing: retaining and expanding their perks and privileges while growing their sphere of autonomous action. There is nothing they seek beyond this. This is the case whether one is dealing with the tax bureaucracy, the power sector or oil and gas, or the state-owned enterprises. It would be better to learn this lesson at the outset, rather than wait till the end when it’s too late.
The writer is a member of staff.
Twitter: @khurramhusain
Published in Dawn, September 27th, 2018
