ISLAMABAD: According to a news story, the Debt Inquiry Commission has questioned the Ministry of Privatisation and the Ministry of Energy over the closure of Pakistan Steel Mills (PSM) and the decision to privatise liquefied natural gas (LNG)-fired power plants.
Haveli Bahadur Shah and Balloki power plants, which were based on LNG, were set up during the tenure of previous Pakistan Muslim League-Nawaz (PML-N) government. Having cumulative capacity of 2,453 megawatts, they were funded through the Public Sector Development Programme (PSDP) and owned by the government through a specially created entity. Therefore, they were not obviously financed through loans.
The Pakistan Tehreek-e-Insaf (PTI) government has decided to privatise both these plants aimed at raising over a billion dollars. The PTI’s move to revive the privatisation programme, which has been halted since 2006, is appreciable.
According to the news story, the visit and questions by the Debt Inquiry Commission came 10 days before a planned visit of foreign investors to seek more information about these LNG-fired power plants.
The commission asked two frivolous questions which suggest its lack of basic understanding of economics. It asked why the government funded these power plants if they were to be privatised later.
This is an elementary issue. Government sometimes mobilises its capital to fund infrastructure projects as the private sector may either lack the capital or may have a low-risk appetite. Once the projects are established and become part of the energy grid, the private sector risk is reduced and it can then arrange the capital to buy and run them.
The commission also asked why the employees of PSM are being paid when the factory is closed. This is a good question but it should be asked to former chief justice Iftikhar Mohammad Chaudhary, who annulled the privatisation agreement to sell PSM for Rs22 billion in 2006.
In the last 13 years, his decision has cost taxpayers several times over that “discounted price”. One should recall that the former chief justice displayed a similar ignorance of economics by confusing the “discounted cash flow” method to value the asset under privatisation with the price discount.
Accountability, rather than accountancy, angle
Majority of members of the Debt Inquiry Commission do not have any training or background in economics, at least in terms of their official responsibilities. In fact, the appointment of deputy chairman of the National Accountability Bureau (NAB) as chairman of the commission indicates that the government is looking at the national debt primarily from an accountability angle, and not with an accountancy one.
All of these loans are taken against approved projects and for documented needs to meet the deficit in the operational budget. This does not need a commission as if debt contracting itself is a criminal matter, though in a strict moral sense, living beyond means is not a good habit.
However, by setting up the Debt Commission, the cabinet has given unlimited powers to a set of individuals most of whom know nothing about their main subject – public debt.
Their recent visit and questions demonstrate this. This will achieve very little, except for bringing more panic to the investors’ community, and unfortunately more discredit to the government.
The government should conduct an audit of the public debt, but not accountability. The federal cabinet should immediately de-notify the Debt Inquiry Commission and should instead constitute a new task force on the assessment of public debt. This task force can comprise representatives of the Ministry of Finance, Economic Affairs Division and State Bank of Pakistan along with some independent economists and think tanks.
Matters regarding the sources and uses of public debt can be best tackled through a technical evaluation of loan transactions. The main questions should pertain to feasibility and sustainability of public debt-funded projects.
The task force should also evaluate the debt management strategy and capacity of the Debt Coordination Office. It should also be mandated to conduct wide-ranging and open consultations with individual experts and stakeholders to suggest ways and means for a comprehensive overhaul of expenditures of the federal government.
The writer is the founder of PRIME Institute, an independent think tank based in Islamabad
Published in The Express Tribune, August 14th, 2019.