FOR a number of years now, we have been hearing a story from the government about how it has turned the country around from the position it was in back in 2013. The economy has started to grow, we are told, and foreign investors around the world are taking note. The stock market has climbed to record highs, as have foreign exchange reserves. The currency is stable, shopping malls are full, auto sales are soaring, the import of consumer items is rising, a house-building boom is sweeping the country and the return of prosperity is visible to the naked eye. Besides the larger economy, another turnaround story has been circulating regarding the power sector. Compared to the situation in 2013, the naked eye can see that load-shedding is down and follows a schedule. Bills are not spiralling out of control, even if the consumers have yet to witness the benefits of the rapid fall in oil prices in the power bills.
But the naked eye is often deceived. Evidence is mounting that the stories of a turnaround being told in both areas — the economy and the power sector — may not be built on durable foundations. For the power sector, the latest report by a German bank, KfW, points out that the increase in the supply of electricity since 2013 owes itself more to additional capacity than generation efficiency. In fact, some evidence suggests a decline in generation efficiency of the major public-sector power plants. The circular debt is back in the news, with the independent power producers once again taking out advertisements threatening to invoke their sovereign guarantees if the accumulated amount of Rs414bn in payments due to them is not released soon.
The visible improvement in the power sector may well owe itself to contingent factors. The price of oil has plummeted since this government assumed office, which has helped the liquidity position of the power sector. Recoveries, too, have improved. But how much of this is due to the highly controversial loss-based recovery plan implemented across the country since late 2013? New capacity is being added in large quantity and the power sector is probably seeing one of its largest spurts of investment ever, but will the power produced by the new investments be affordable, or will it lock us into a high-cost growth path once again like the IPPs of the late 1990s did? The findings of the report by KfW perhaps scratch the surface of what all needs to be known before we can buy into the claims of a turnaround in the power sector. It would, indeed, help if the government brought greater transparency to the sector’s governance by regularly releasing operational and financial data so that an informed decision on the future prospects of the sector can be made.
Published in Dawn, March 7th, 2017