Is the PTI getting its act together?
Renegotiation of IPP contracts is one of the biggest economic achievements of the PTI government.
When the power sector report came out, mainstream media was in an uproar about “excessive profits.” Allegations were made about how crony capitalists were sucking the blood out of the economy like parasites and demands were made to bring these rent-seekers to justice.
This, of course, was wildly off the mark and further evidence of how shallow and ill-informed mainstream discourse on the economy can be.
I invited Ammar Khan on my podcast to talk about the power sector in the context of this report. You can listen to the complete discussion here but for those short on time, here are the key takeaways from that discussion:
The power sector is a mess due to a whole host of reasons
Contracts signed with IPPs reflected the realities on the ground at the time, i.e., investors demanded risk premium for investing in Pakistan at a time when the country was going through an existential crisis
Investments in power generation means that the capacity constraints have been solved
Focus now needs to shift on the transmission and distribution side; inefficiencies in the distribution side leads to losses, which is primarily responsible for driving up the circular debt
The government and IPPs must negotiate in good faith to resolve some of the issues with power contracts
At that time, both Ammar and I were cautious about the government’s ability to renegotiate these contracts. So when Prime Minister Imran Khan made the announcement on Twitter that the negotiations had been concluded successfully, I reached out to Ammar again.
Watch the 15 minute discussion below for a quick take about what the negotiations were about.
The key takeaway from this discussion was that this is perhaps the most significant economic achievement of the PTI to date. It sets a precedence for negotiating CPEC-related power contracts and allows the government to shift its focus on transmission and distribution issues.
Another important point is that this deal, in and of itself, will not benefit the consumer, at least for the time being. Circular debt remains a problem and resolving this issue requires difficult reforms at distribution companies across the country.
Also, in case you are wondering whether Ammar is the only one who believes this is a major development, here is Ali Khizar’s take in the Business Recorder:
It is a landmark decision as it signals government's resolve to revise contracts with skewed investment incentive structure. It will also set the tone for adjusting contractual arrangements for other power generation projects.
He concludes with this:
Power contracts renegotiation is off to a good start. But the government must look beyond traditional cost minimization lens to optimize energy supply and consumption in the country to achieve long-term growth.
Has the PTI finally gotten its act together?
Notice that over the last few weeks - since the prime minister said the government had six months to improve its performance - the level of noise from government ministers has reduced quite a bit.
Yes, we have had Shah Mahmood Qureshi make headlines with his remarks about the OIC, lots of noise about trolling and fake news on social media, and Shireen Mazari’s comments on Kashmir.
But all of this is par for the course.
Focus has shifted towards more important things and progress has been made:
FATF bills have been passed
Closed-door negotiations on Karachi’s governance issues are ongoing
IPP contracts have been negotiated
New shipping policy unveiled
Ariba Shahid, business journalist at Profit by Pakistan Today, agreed with me on this. And we both felt that somehow, something along the way has clicked.
Watch my discussion with Ariba below.
One hopes that this momentum continues and that the government and key PTI leaders do not celebrate prematurely. After all, the economy remains in a fragile place and a lot more needs to happen before we can comfortably say that Pakistan is on the path to sustainable economic growth.
A month and a half since this article, do you still feel like the government has gotten their act together?