Hopium – II: How Pakistan needs to rethink its planning

Pakistan needs disruptive changes, a deregulated business environment, and SOE reform if its economy is to grow

The  fortnightly energy pricing for fuel, LPG and LNG, monthly pricing for power, and six-month pricing for gas needs an approach that smoothens the impact and reduces the risk, without causing political despair every fortnight, every month, and every six months. A review of tariff adjustments by Business Recorder highlights that it is manageable.

Starting in July 2024, the rationalization of tariffs with a reduction in government intervention necessitates empowering combined OGRA and NEPRA, and providing indigenous gas only to power plants and fertilizer. Any leftover molecules are to be “stored” by reducing production at the field level. Captive power plants, 3 RLNG units, fertilizer and all of the industry to utilize RLNG/LPG/LPG Air Mix should be phased in by 2027. The case for fuel pricing based on futures – with the role of PMEX – should be defined and implemented by a combined regulator.  

In parallel, the regulator along with CPPA-G, DISCOs and Sui companies should determine timelines for power and gas sector loss reduction (losses 15%, recovery 95% target and UFG 5% target). And the case for reducing circular debt by investing in above and increasing royalties on oil and gas, windfall levy against crude oil, levy on LPG/petroleum and GIDC should be implemented over the next five years. .  

The FIPPA applicability to investments in ambitious projects e.g. TAPI, Riko Diq, Refinery, Petrochemical, CASA 1000 etc by the concerned Ministry without approval by cabinet, deregulation of sector combined with the wealth fund will encourage PSO, OGDCL, PPL, Utilities and DISCOs to partner with qualified and experienced partners.

No longer ‘hopium’ should be the norm as has been repeated constantly by various stakeholders in the last 75 years. Our lack of data-driven decision making encourages our ‘4th world’ journey. 

The World Bank’s country director recently commented that Pakistan’s current economic model is not working since it has fallen behind its peers, significant progress in poverty reduction has now started to reverse, and the benefits of growth have accrued to a narrow elite. Stakeholders need to coordinate and move beyond point scoring, not be economical with truth, communicate the way forward for a plan. 

Our political manifestos should focus on that instead of building the usual ‘hopium’ given that Pakistan requires a sustained GDP growth of 7-9% for the next 30 years. We should focus on reducing the fertility rate, and providing a minimum standard of living to our citizens with minimum pay set at Rs 75000 per month, subject to revision with respect to inflation every July. A focused subsidy with matching funding can deliver free units of  electricity, health facilities, houses to homeless, youth and kissan card, hunger eradication and quality education. 

However it will be ‘old wine in new bottles’ if this is done without challenging the status quo and highlighting the revenue measures.

The next decade requires tough choices, disruptive inspiration and no business as usual. It necessitates a credible structural reform package, a conducive investment environment, encouraging regional trade, changing state of patronage and taking decisions by allowing professionals to undertake their job diligently as they tackle scenarios that evolve and be able to modify the path accordingly without repercussions.

The effective enforcement of laws will facilitate investment and this has to be encouraged by the federation providing continuity of policies, transparent procedures and contract award with changes effective prospectively and obligations met per contractual obligations.

A deregulated and competitive environment requires regulator policies which provide enforcement authority only when self monitoring fails. The staged and limited investment incentives include the reduction in number of permissions required and encouraging new approaches without regulator checklist selecting investors.

 A conducive business environment provided by a tolerant society includes the definition of the role of judiciary in commercial matters with a viable and timely contract dispute resolution mechanism with no judicial activism as has seen in the past that does not cancel contracts but rather ensures an effective contract arbitration process.

Finally, the strengthening of defamation laws, discouraging media trials aimed at victimization and providing retribution for false cases.

 Given increasing interdependency, Pakistan’s most disruptive paradigm change requires effective integrated planning necessitating a Planning Commission working as “Pakistan NDRC” along the lines of National Development and Reform Commission (NDRC) of China, defining institutional parameters and boundaries for growth based on guidance of Strategic Investment Facilitation Council (SIFC) acting as “Board of Directors”.

This challenge to the status quo requires the consolidation of commerce, technology industries, transport industries, the energy sector and the education sector. It should be led by a professional deputy prime Minister, or a senior minister, who should be assisted by experts, think tanks and financing institutions to evolve a home grown executable strategy.

 The next disruptive measure recommended earlier is the revival of the PIDC as a holding company to manage the federal and provincial government shareholding in state owned enterprises (SOEs), followed by their aggressive transformation, consolidation of roles, merger of departments, encouraging new opportunities for export, partnering with defence industry, focusing on regional cooperation and undertaking strategic infrastructure investments.

SOEs “Employment Exchange” role needs to end as Federal SOEs are the least profitable in the region with subsidies, loans, equity injections  at 1.4 % of GDP with stock of guarantees and loans of 3.1% in 2016 and 9.7% during 2016-21.

 With bills in place and review aimed to rationalize and strengthen the SOE’s policy and oversight being undertaken, the goal now has to be consistency and confidence building through measures that ensure ease of doing business, encouraging FDI while restructuring SOEs assets and debts.

 The rebuilding of 206 SOEs is more cost effective and reflects commitment to change,  instead of initiating green field projects. The PIDC would have the role of wealth fund as well, and is to be a corporate holding company structure. The PIDC also requires CPEC Authority’s chairman and other officials immunity from investigations by NAB and FIA and SOEs involved in Reko Diq copper and gold project being entitled to indemnification in case of losses, administrative and legal matters.

This disruptive measure is essential given our history of privatization and efforts for reorganizing and transforming SOEs has had limited success. The execution will only happen with an experienced technocrat chairman designated as deputy prime minister or senior minister.

Instead of a big bang approach, sustained efforts by an effective empowered leadership team is required, to manage the SOEs based on principle of working for profit and are not to be bailed out beyond three years. 

The final message: if unable to reduce the number of institutions: merge them: Corporatize them and force them to be financially self reliant, productive and competitive.

Sheikh Imranul Haque
Sheikh Imranul Haque
Sheikh Imranul Haque has served as the managing director of Pakistan State Oil (PSO) and chairman of the Petroleum Institute of Pakistan and OCAC. He can be contacted at [email protected]

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