Ahead of budget,  is the FPCCI off tangent?

On 25th May 2021, four of the country’s leading newspapers carried an appeal to the Honorable Prime Minister. Unlike the annual pre-budget industry lobbying, this time a faction of Karachi based industrialists raised a different matter. Among other claims, the statement decried discrimination for a handful of consumers at the hands of NEPRA, the National Regulator, and accused them of favoring K-Electric by allowing exorbitant transmission and distribution losses while claiming that the authority had unfairly awarded billions in government subsidies. The statement was spearheaded by the Federation of Pakistan Chamber of Commerce and Industry, the country’s premier industrial forum. Of the 220 trade bodies that the Federation claims to represent, only a small interest group extended their support.

As of the writing of this article, at least two out of these participants have disassociated themselves from the contents of the appeal.  Given the timing and mismatched content, the publication of this advertisement suggests a different, larger ‘developing’ story. The apex body’s latest faux pas also reveals a crack in an otherwise pristine façade, revealing glimpses of a potential motive to shift the trends of national investment.

Uncharacteristic Inconsistencies

On 26th May 2021, K-Electric responded with a full-page advertisement delinking the individual claims in the appeal and clarifying that the issues raised had no bearing on the consumers of electricity in Karachi, Dhabeji, Hub or anywhere in Pakistan. The arguments in the KE version were supplemented with evidence from different sources including the NEPRA’s State of Industry Report.

The seriousness of the appeal quickly fizzled out as industry experts began to discuss and then question the validity of the claims and their applicability on the average consumers of electricity. 

The FPCCI appeal further accused the Government of discriminating against consumers in Sindh whereas those based in Punjab were being preferential treatment by Government and NEPRA. 

It was also surprising to note that the appeal to the Prime Minister claimed that KE had been receiving billions in subsidies when it is generally understood that the benefit of these subsidies is fully and directly passed to the end customers with no involvement of the individual distribution company.

A rift in the ranks or power play?

While K-Electric issued its own formal response, a dissenting voice against the Chamber was also raised from within and industrial forums were abuzz with messages of distancing from the contents and questioning the motive behind it. The Pakistan Leather Garments Manufacturers and Exporters Association even issued a formal statement denouncing the appeal and stated that the use of its logo to imply support was unauthorized. The statement clearly mentioned that the PLGMEA had expressed its concerns over the validity of the content and communicated that they be excluded. In an uncharacteristic move, the FPCCI had appeared to push the statement through, nonetheless.

Such a split within the ranks is unprecedented within FPCCI. Established since 1950, the chamber commanded an authority and influence across the Government which was respected by all. For the past several years, the Chamber had grown owing to the patronage of industrial magnate SM Muneer. Between him and the late Siraj Teli of the Karachi Chamber of Commerce and Industry (which is now represented by Zubair Motiwala), every businessman was assured that their interests and voices were being highlighted at the top echelons of the country.

The changes in leadership seem to be bringing a change in the way of doing business, much to the chagrin of the broader business community. Whether this rift is a result of the vacuum created by Mr. Teli’s departure persisting or a power play to shake the defacto incumbents is yet to be known. 

Changing Tides of Investment:

Curiously, a central feature of the appeal published on 25th May was the demand that the Prime Minister and the Federal Cabinet issue a set of instructions to the Ministry of Power and NEPRA “before they allow the change of ownership of K-Electric.”

Whether this was intentional or not, this one line seems to be the driving motive behind the ad as well as the subsequent proposals. Demands made in the appeal included disassembling KE’s vertically integrated infrastructure, putting its transmission network under the National Grid and others and for the territory’s Distribution network to be treated ‘at par’ with state-owned DISCOs. 

Unfortunately, these demands ignored the crippling impact of circular debt of PKR 2.6 trillion which is currently gripping the power sector, that the state-owned DISCOs inflict year upon year on the national exchequer. This is also a regressive approach and in direct contradiction of Government’s desire to privatize the sector.  In a next day statement, NEPRA was seen calling for state-owned distribution companies to be privatized, citing their failure to curb line losses as a contributing factor towards the national circular debt.

Ironically, FPCCI – headquartered in Islamabad with a presence in every nook and cranny of the country – has nothing to say on how to improve the 11 state-owned DISCOs, which are well within the purview of the Government and whose issues can be resolved far swiftly.

Such a move follows on the heels of, and in contradiction to, the significant progress that the Government of Pakistan has achieved in bringing respite to the people of Karachi. News reports reflect a positive and cordial working relationship which is addressing long-standing matters of payables and receivables and formalization of the agreements for the purchase of additional power from the National Grid as well as the supply of gas for KE’s power plants.

Stalling Progress of SEP Transaction Real Motive?

This is not the first time that lobbies have become active to stall the acquisition by Shanghai Electric. News of breakthroughs in negotiations and conversations with the Government are quickly negated with contradictory reports and negative statements from different angles. The pattern is uncanny. This begs the question – who stands to benefit from dismantling a performing utility and distributing its parts. 

There seems to be some ulterior motive at play – dismantling will certainly make it easier to acquire it in bits and pieces by someone who lacks the investment capability of a giant like SEP. 

Some sources in Islamabad claim that there was significant interest from local investors in KE and its affairs. According to them, Amongst many names that came up were a delegation of investors reportedly from the Far East, particularly Korean. This delegation according to the source was jointly led by two individuals. The first operates one of the most popular Intercity bus services across Pakistan, while the second is the owner of the Pakistani conglomerate which has recently set up an auto manufacturing unit for a renowned Korean brand. Other market rumors also share a name on background who is heavily involved in the Pakistan Stock Exchange. There is also a growing suspicion within the market, according to a source, about the link between the FPCCI consortium and the Special Adviser to the Prime Minister on Power and Petroleum, Tabish Gauhar, and his influence in driving this narrative from the background. Source claim that meetings were held in Islamabad and among other items, these foreign and local investors discussed entering the national power market. No interest was seen by them in rescuing any of the state-owned DISCOs however. 

Underlying the reservations in the ongoing transfer of 66.4% shares of K-Electric to Shanghai Electric Power Company, seems to be a desire to contend for the acquisition of the company.

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