Talking business
The shutdowns and large-scale power outages the media so craved never materialised.
As if the flood damage was not enough. As if an International Monetary Fund (IMF) programme that now appears to be comprehensively ‘off track’ – to use the euphemistic parlance of international financial institutions – was not enough. Now we have a flare up on circular debt.
The weekend began with a dire warning from Pakistan State Oil (PSO) that it stands on the edge of default. By evening, the channels woke up to the story before them, realising that fuel shortages combined with a potential shutdown of the country’s largest private power plants could spell the beginnings of another big story, the sort the screen loves.
By Saturday morning the finance ministry came out of its slumber and produced Rs12 billion to douse the issue and before afternoon fuel supplies to Hub Power Company (Hubco) and Kot Addu Power Company (Kapco) had resumed. The shutdowns and large-scale power outages the media so craved never materialised.
The almost three-year-old story of circular debt is marked by several such episodes, where one party issues loud warnings that it is about to shut down, prompting the government to intervene.
The first such experience would be when the Pakistan Electric Power Company (Pepco) shut down Karachi Electric Supply Corporation’s (KESC’s) electricity from the national grid, prompting a cascading series of shutdowns in KESC’s own plant at Bin Qasim, effectively shutting down the city of Karachi.
Pepco’s extreme step had been prompted by continuing lack of payment by the then management of KESC, which itself was pinned on non-payment of dues by government customers, principally the water and sewerage board.
Another such episode was when Hubco announced that receivables from its customer, the state-owned power company, had risen so high that the company would be forced to shut down its operations if payments were not made.
That set of calls continued for almost a year, although Hubco never took the step of actually shutting down. But each time the warning bells publicly rang, a small payment would be dispatched from the finance ministry with the intention of silencing the pesky voice. In the first quarter of 2008, the IMF decided to insert itself into the story. No doubt Hubco’s connections with international financial institutions, particularly the World Bank, played an important role in this decision.
Settling payments with power producers became part of the demands the IMF placed upon the finance team led by Shaukat Tarin in the review of March 2008. The IMF’s entry into the growing affair prompted the government to act for once, and Term Finance Certificates (TFCs) were floated. Twice Hubco and Kapco saw their receivables virtually eliminated, but both times they ballooned back up within months.
Hence, leaving the power sector players to their own devices did not serve up a solution of any sort, leading only to the shutdown of Pakistan’s largest city.
Piecemeal and ad hoc payments have not served any purpose either, as the long drawn-out duel the government fought with Hubco clearly shows. And large scale, one-time payments of the TFC variety did not cause this problem to go away either as the chain of receivables is larger now than it ever was before.
The only good news from the weekend, therefore, is that a large scale power shutdown has been averted. The finance ministry’s payment of Rs12 billion to PSO ensures that for now fuel supplies to independent power producers (IPPs) will not be suspended. But the question is: for how long?
Piecemeal payments of this sort buy nothing more than ever diminishing slivers of time, since receivables to Hubco have to be paid back with interest.
To my memory, this is the first time PSO has issued as strong an SOS as it did on Friday, taking the extreme step of loudly and publicly announcing suspension of fuel supplies to the largest IPPs in the country.
That is worth thinking about. If this episode is not a wake-up call that the country’s power woes require a concerted effort by the political leadership as a whole, then I am afraid we have seen nothing more than another Rs12 billion of taxpayer funds go down the drain.
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, September 20th, 2010.
The weekend began with a dire warning from Pakistan State Oil (PSO) that it stands on the edge of default. By evening, the channels woke up to the story before them, realising that fuel shortages combined with a potential shutdown of the country’s largest private power plants could spell the beginnings of another big story, the sort the screen loves.
By Saturday morning the finance ministry came out of its slumber and produced Rs12 billion to douse the issue and before afternoon fuel supplies to Hub Power Company (Hubco) and Kot Addu Power Company (Kapco) had resumed. The shutdowns and large-scale power outages the media so craved never materialised.
The almost three-year-old story of circular debt is marked by several such episodes, where one party issues loud warnings that it is about to shut down, prompting the government to intervene.
The first such experience would be when the Pakistan Electric Power Company (Pepco) shut down Karachi Electric Supply Corporation’s (KESC’s) electricity from the national grid, prompting a cascading series of shutdowns in KESC’s own plant at Bin Qasim, effectively shutting down the city of Karachi.
Pepco’s extreme step had been prompted by continuing lack of payment by the then management of KESC, which itself was pinned on non-payment of dues by government customers, principally the water and sewerage board.
Another such episode was when Hubco announced that receivables from its customer, the state-owned power company, had risen so high that the company would be forced to shut down its operations if payments were not made.
That set of calls continued for almost a year, although Hubco never took the step of actually shutting down. But each time the warning bells publicly rang, a small payment would be dispatched from the finance ministry with the intention of silencing the pesky voice. In the first quarter of 2008, the IMF decided to insert itself into the story. No doubt Hubco’s connections with international financial institutions, particularly the World Bank, played an important role in this decision.
Settling payments with power producers became part of the demands the IMF placed upon the finance team led by Shaukat Tarin in the review of March 2008. The IMF’s entry into the growing affair prompted the government to act for once, and Term Finance Certificates (TFCs) were floated. Twice Hubco and Kapco saw their receivables virtually eliminated, but both times they ballooned back up within months.
Hence, leaving the power sector players to their own devices did not serve up a solution of any sort, leading only to the shutdown of Pakistan’s largest city.
Piecemeal and ad hoc payments have not served any purpose either, as the long drawn-out duel the government fought with Hubco clearly shows. And large scale, one-time payments of the TFC variety did not cause this problem to go away either as the chain of receivables is larger now than it ever was before.
The only good news from the weekend, therefore, is that a large scale power shutdown has been averted. The finance ministry’s payment of Rs12 billion to PSO ensures that for now fuel supplies to independent power producers (IPPs) will not be suspended. But the question is: for how long?
Piecemeal payments of this sort buy nothing more than ever diminishing slivers of time, since receivables to Hubco have to be paid back with interest.
To my memory, this is the first time PSO has issued as strong an SOS as it did on Friday, taking the extreme step of loudly and publicly announcing suspension of fuel supplies to the largest IPPs in the country.
That is worth thinking about. If this episode is not a wake-up call that the country’s power woes require a concerted effort by the political leadership as a whole, then I am afraid we have seen nothing more than another Rs12 billion of taxpayer funds go down the drain.
the writer is Editor Business and Economic policy for Express News and Express 24/7
Published in The Express Tribune, September 20th, 2010.