The high price of power in Pakistan

As a country far more familiar with that role, Pakistan has already received its share of pre-meeting scolding. Even though recent Islamabad meetings were meant to convince the IMF delegation that Pakistan would meet its debt obligations, it seems the assurances of Pakistan’s economic leaders fell short.

The IMF delegation left after giving a terse suggestion that Islamabad consider immediately ending the 400-billion rupee (Bt129 billion) subsidy on electric power to the country’s poorest citizens.

As the IMF continues its meetings with Pakistan in Dubai and later in Tokyo, they will not hear the collective groan going up from Pakistani consumers at the increasingly long hours of load-shedding and the ubiquitous blackouts that have become part and parcel of their life.

However, before power-starved Pakistan launches into a lament about the onset of even darker times, it seems that the county’s political calendar has already intervened to provide respite.

As both the IMF and Pakistani consumers know, no change of any sort, least of all one affecting a subsidy supposedly providing cheap power to millions, is likely to be implemented in the months leading up to the next election. As is always the case, the government in Pakistan will borrow more to ensure that while the next leaders may yet be unchosen, their fate, one of deeper indebtedness, is already a reality.

Those of course are the political realities, and while they are likely to determine outcomes, it is useful to consider the country’s electricity subsidy (and the IMF and World Bank’s recommendations to end it) as a way to examine the distance between programmes that aim to help the poor and their ability to do so.

One World Bank policy paper published in July last year details, for example, why power subsidies are in fact not an effective means of either power provision or poverty reduction.

One reason for this, says the paper, is that such “lifeline” tariffs fail to protect the poorest consumers. Secondly, the consumption cap on these tariffs is so low that fails to match the consumption patterns of base users.

The consequence, the paper concludes, is that Pakistan’s electricity subsidy does not in actuality help the poor, its minimal overall benefits going to the richest 40 per cent of Pakistani households.

At the end comes the most crucial point – the power problem in Pakistan does not stem from the cost of power but from the failure of power companies to recover costs from consumers and from an inefficient system of power delivery that penalises those who pay to appease those that steal or have enough political connections to ignore their electricity bills.

Similar insights can be found at the IMF, whose Pakistan country report of February 2012 set off similar alarm bells regarding electricity subsidy.

Helping the poorest of consumers is indeed a noble goal and all financial institutions it seems would like the government to take care of its poor. But a power subsidy that is at best a political slogan and at worst another shoddy programme that ignores the core problems is not the way to go about it.

Some helpful suggestions from the IMF circular include boosting “public finance through revenue mobilisation”, meaning increasing the number of Pakistanis paying federal taxes.

Another is “reforming the energy sector” by putting an end to subsidies that are not really subsidies at all but excuses for refusing to solve the problem of distribution and cost recovery.

Taxes, widening the tax base and even imposing the agricultural taxes that Pakistan’s landed class has happily evaded are all election issues in Pakistan, with politicians yelling on television, waving tax payment notices that they claim to have paid.

Regardless of whom one chooses to believe, the crucial issue revealed by the IMF is that the fiscal coordinates that render inevitable the failure of the next government are already in place.

According to IMF statistics, Pakistan received US$3.1 billion (Bt95.3 billion) from the IMF in November 26, 2008, $847.1 million on April 1, 2009, $1200.2 million on August 7, 2009, $1.2 billion on December 23, 2009 and $1.13 billion on May 14, 2010. In 2012, Pakistan has to repay $726.8 million Special Drawing Rights with accrued interest.

If the figures boggle, here is an easier statement to digest: the money isn’t there and everyone at the IMF expects that Pakistan will ask for another loan to avert its obligations. In the next few months, elections will come and go but the power subsidies will stay and those who don’t pay taxes now will continue to evade them.

A new government will be elected, already indebted, and Pakistan, by then deep into another sweltering summer of shortages, cuts and blackouts, will remain predictably powerless.

Rafia Zakaria is an attorney teaching constitutional law and political philosophy.