Transparency and how it can help !

Sometime back when I used to work for a paint company as head of industrial sales I encountered some very strange situations. The strangest of all was the one I met with in PECO. When I asked their head of purchase why he took so long to settle my invoices he told me something which for me was earth shattering. I am sure it will shock everyone and anyone who knows anything about business and cash flows.

My specific question to him was “ why cant you pay me out of your sales proceeds if you have sold all the stock on which my paint was applied ?” and his reply was…

I can’t do that because all the proceeds of sales go to Islamabad and then I have to beg some section officer for giving me the money. The person in Islamabad gives me back the money that PECO has made as if it were some alms or charity. Standard red tape.

The whole truth as you may have guessed is that the person in Islamabad gives him back his own money plus some support funds to off-set the loss being made by PECO every month. Whether that loss is due to low turn-over, which is a result of bad cash flows or other in efficiencies or a combination of both. It is a matter to be debated some other time.

One of the major ingredients of performance improvement is transparency. The worker or the consumer should know that the money being spent by him is being handled properly. The case of GCP where lack of transparency led to the collapse of a good government sector organization is one such example. The Ghee Corp of Pakistan was depositing huge sums of money in the government kitty as excise. The amount that they generated as revenue must have been going into the pool in Islamabad. Every month the state functionaries remitted money to them as alms. The whole point is that the ordinary worker in G.C.P thought that they were in-fact making tons of money and that the state was just muddling the books. As a result whenever a union leader in the G.C.P was told that the medical bill of G.C.P workers ran into millions the standard reply was that look at the excise revenue we are generating.

Similarly in the case of Wapda most of the money collected through electric bills goes straight to Islamabad where it may be spent on some non- priority expenses while the circular debt keeps growing. By most of the money I mean that all surcharges and fuel adjustment charges etc. Only the unit rate goes to WAPDA. For perspective in commercial bills the unit rate for Lesco comes to RS 28 approx. if you divide the entire bill with the total number of units consumed. Only on paper the rate per unit however remains around RS 12 or so.

The worst part about the circular debt is that the State has to pay certain guarantee money even if the state does not buy any power from the IPPs or RPP. This means that even if we don’t buy any power from them our circular debt will keep increasing.

Which part of your payment goes to Islamabad and which part goes to WAPDA is not known by most people.

What is even stranger is that the state has stopped giving out new licenses to power generators. What a common business man would have done would have been the opposite of this. Look we have run out of our routine requirement. But we can still offer you a license on the following terms. We could have had the terms softened and then over a period of time could have retired the foreign IPPs. But no one thought of that. This includes the PML-N and the PPP . In a country where there is a severe dearth of power new licenses for private generation companies have been stopped. If you ask why then you get a very strange answer which is “the dead line for applying for new licences has expired”.

DISCOS have a fair idea of where their electricity is being lost is being lost due to unethical practices. Recently I asked a gentleman and he told me that they have a grid by grid evaluation of how much electricity was distributed and how much got billed. I said if you install some sort of meters in each sub- station then you would have an idea of where exactly the power transmitted is being siphoned off free.

Due to these factors the feelings of the WAPDA staff are the same as the ones experienced by the GCP staff. They say they know they are generating revenue but the revenue generated by them is not being used on their organization. Rather it is being used on some other non- essentials. This results in a lack of ownership on part of the staff.

The lack of ownership we see in the management of all State Enterprises is on account of this. We tie their fortunes to Islamabad.  And hence a feeling of money going and coming from a black hole takes place. Every employee feels that things will continue to be the way they are and that the organization will continue to limp its way through history. When the organization makes a loss no one feels the pinch and if in case it makes money no one sees the benefit.

On top of everything the the judiciary wants to interfere in all commercial matters where it has either very little knowledge of the matter or wants to make political capital of it. Either way it does not do anyone any good because it creates more confusion in the affairs of the state.

Now that the steel mill is making a loss the CJ wants to inquire why it is so. He should have inquired why the steel mill was making a profit when he had stopped its sale. When China was making its large 3 gorges dam steel was short internationally. Hence the price of steel went up to $700 per ton. Now it’s down to $ 400s. Even our inefficient steel mill could make a profit at prices in excess of $ 700 per ton.

As per  the rates quoted on the internet the cost of each unit is 10p in the U.K which comes to about Rs 14 per unit. The other option available in some areas is that you buy electricity at 14p during the day and for 6p during the night. Which means  Rs 19.60 during day and Rs 8.4 at night. Now look at the income levels of the U.K consumer and the income levels of the Pakistan consumer and tell me how is the Pakistani consumer supposed to pay Rs 14 per unit with per capita at less than a third of United Kingdom

It is usually declared that the short fall in power generation and demand is about 25% to 30%. But if we look at the load shedding timings of the domestic sector then it appears that the shortfall is somewhere in the region of 50%. Had the shortfall been 25% then there would have been power outage for 6 hours per day. But the power shutdown is more like 10 hours per day. In smaller towns it is even more so 10 or 12 hours out of 24 means 50% approximately and not 25%.

People who work in industries are disgusted with the situation. The power loom sector is in shambles. The daily wager is nearing the starvation point. Other small industry is near shut down. Then how can be the power shortfall be only 25%. It must be around 60%. If indeed the power requirement is 20,000 MW then our generation must be near 10,000 MW or less. Only such a huge shortfall would explain the disaster like situation that we have at hand.

Even though Indus Water Treaty is there but still India is building dams on rivers which were supposed to be irrigating Pakistan. Hence our options for hydro -electric projects are shrinking at a fast pace. Had we built some dams on the Indus we would have had a case in the Internation Court of Justice. Now we have no case. India can always say that since Pakistan has no dams on Indus so she is only hoarding excess water because this excess water would have been of no use to Pakistan rather they would have played havoc with their population.

So our options are nuclear, non- conventional and thermal. And these are the ones we should be looking at in the short to medium term. And yes we should de-regulate the energy sector and stop having the mindset which says people require licenses for this that and the other investment.

The table below shows the increase in power consumption in our domestic sector is the highest. It has gone up from 23.6 to 32.3% of our total power needs. Commercial consumption has gone up from 3.2 to 5.3%. While industrial has gone up from 16.2 to 19.3% and agriculture has gone up by 2.8% to 8.8% in 7 years.