Tough love: ‘No money until power companies improve efficiency’

Cabinet committee adopts finance ministry’s stance of requiring reforms first.

ISLAMABAD:

Slowly but surely, the finance ministry seems to be getting its way: after saying for months that they would not release any money to the power sector until it undertakes governance reforms, officials at Q block have managed to persuade the special cabinet committee on the energy crisis approve the ‘tough love’ stance as well.

At a meeting of the committee – comprising Finance Minister Abdul Hafeez Shaikh, Water and Power Minister Naveed Qamar and Petroleum Minister Asim Hussain – it was decided in principle that the government would not release any money to the power sector unless the power companies improved their own efficiency first. A final decision on the matter, however, was deferred to the upcoming cabinet meeting.

The government will eventually have to throw more money at the power sector but would only do so after changes were made at the top level, said one official familiar with the discussions at the meeting.

The government has given Rs1,040 billion in subsidies to the power sector over the past three years.

The official said that the committee expected that the cabinet would approve reforms designed to improve the governance of the power sector.

Yet while the committee seems focused on seeking permanent, institutional changes to the energy sector’s structural problems, such commitments have been made in the past as well, including under Raja Pervez Ashraf’s tenure as water and power minister. No practical steps, however, were taken.

“The situation cannot be improved unless the water and power minister gets out of the business of running the sector and restricts himself to only policymaking,” said another senior government official who wished to remain anonymous.

Among the recommendations of the committee was the proposal to replace the CEOs of all eight state-owned power distribution companies (the only other distribution company – the Karachi Electric Supply Company – is privately-owned), with professional managers rather than government bureaucrats.

The most controversial proposal, however, would be authorising those new CEOs to hire and fire people, a recommendation that is unlikely to be approved by the cabinet of a left-leaning populist administration.

Another proposal to help address the chronic financial crisis in the power sector was to arrange for loans from international lenders for the power companies, rather than direct handouts from the federal budget. Sources said that project-specific loans would help ensure financial discipline on the part of the power companies, as opposed to the complacency engendered by the easy money currently flowing from the treasury.

Published in The Express Tribune, October 6^th, 2011.