The country remained crippled and paralysed only too recently owing to a fuel crisis. That has been followed by an electricity crisis that, at the time of writing, has entered its fourth day. According to some, the electricity crisis too has its roots in the shortage of furnace oil. And just when the search for a scapegoat continues within the circles of the government, it is important to ascertain the reasons behind this shortage and to probe whether it was mismanagement and ineptness only or a broader, more corrupt design here.
So, what really happened? On December 31, 2014, Reuters reported that Pakistan State Oil (PSO) skipped the tender for import of furnace oil and also reduced its oil imports orders for a period until March 2015. It also reported that PSO deferred its December tender to January. The event was an anomaly for Asian oil trading circles and business wire services like Reuters. PSO explained that it had to do this owing to a cash crunch. It has been reported in the local media (post-crisis) that, on December 31, 2015, PSO asked the government to release Rs 74 billion to honour its local and international commitments and continue with stock import. PSO is in a tight financial situation as its receivables have skyrocketed to Rs 200 billion out of which Rs 176 billion is owed by the power sector, something that commonly falls under circular debt.
There are suggestions that the finance ministry was reluctant to issue the amount owing to its commitments with the International Monetary Fund (IMF) because of the conditions of the IMF loan programme. Some circles are also mentioning that, after coming to power, the Nawaz government made oil supply agreements with Saudi Arabia at rates that were discounted then but are way above spot price now as oil prices have plummeted by more than 60 percent globally. In its haste to score political points at the height of the PTI’s sit-ins, the prime minister moved on with lowering fuel prices without revising these contracts with the Saudis and, thus, as the crisis intensified, he rushed to the Kingdom for renegotiation of the contracts. Since contracts with Saudi Arabia are the best kept secret of the house of Sharif, the nation has no means to verify if this assertion is true or not.
The reduction in oil prices also had two more impacts on the overall supply and demand of fuel. One, the declining prices made the oil marketing companies deplete their inventories to avoid losses in an ever-declining global oil price regime. Two, it made a serious dent in the government’s revenue collection as 16 percent (duty on fuel) of the new lower price was way less than what had been estimated in the budget. So, if one believes the evidence that has surfaced thus far, pressure to maintain their finances on OMCs in price plummeting marketspace and the cash crunch faced by the government leading it to not honour PSO’s demand for funds, ultimately led to a fuel shortage in the country. This highlights the sheer ineptness of the regime, making even the war-torn Congo seem better governed.
However, there is more to the crisis that needs to be probed. For one, the system of power sector payments has loopholes that need to be audited. A thorough audit needs to be made of IPP payments to PSO and whether they are in line with the payments made to them by the Pakistan Electric Power Company (PEPCO). Second, just when extensive focus is on limiting losses on the distribution side, a thorough and efficient audit mechanism needs to be deployed on the generation side as well as including an effective mechanism for heat tests. It is time the flawed power policy based on tariff approvals is scrapped in favour of a more transparent and efficient auction-based power generation policy. Third, any fuel contracts with foreign governments should be made public and debated openly in parliament.
And last but certainly not the least, it should be probed whether the oil imported post-crisis has been purchased at higher prices or not. First, it should be probed whether the price PSO would have gotten through tender would have been more or less than the price paid for current spot contracts. And, second, it should be probed whether the spot price at which the emergency stock has been purchased is in line with the lower end regional spot price or not. Probing these will provide the best clue to any corruption in the process.
A Pakistan crippled for eight days must have cost around three to five billion dollars in GDP and a loss of revenue to the government of a few hundred million dollars. Whether caused by ineptness or malafide, this is the biggest financial leak in the history of our country. A thorough cause and impact analysis needs to be made and heads must roll at the very top. The prime minister’s attempted optics of concern for now is nothing more than pretending to burn the midnight oil for showmanship. Those responsible in policy planning must be made an example of because of their ineptness and corruption. This should never happen again. We deserve better.
The author can be reached on twitter at @aalimalik