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CWA # 1067, 4 September 2023
NIAS Pakistan Weekly
Pakistan’s power predicament: Soaring bills and public discontent

  PR Team

PR Special Commentary
Pakistan’s power predicament: Soaring bills and public discontent
Dhriti Mukherjee

Although the issue of hiked bills has been prevalent for a considerable amount of time, the mass public dissatisfaction has risen due to the free rider problem, an absence of transparent records, and similar hikes in food and fuel prices

The electricity bill crisis
On 04 September, following a sustained rise in the price of electricity bills, public protests began becoming widespread. Since the third week of August, Pakistan has been experiencing inflated electricity bills, with rates jumping by 100 per cent to 200 per cent.

The Interim Finance Minister Shamshad Akhtar stated that there was no “fiscal space” to help consumers with the electricity crisis, as the economy is facing 30 per cent inflation. She has described this to be a “worse than anticipated” economic situation. The Pakistan Bureau of Statistics (PBS) revealed headline inflation of 27.4 per cent in August. It has elicited public protest via shutting down shops and signs that denounced the “the unreasonable increase in electricity bills and taxes.” People took to the streets to burn their bills in protest, with threats of a civil disobedience emerging in recent days.

Although the issue of hiked bills has been prevalent for a considerable amount of time, the mass public dissatisfaction has risen due to the free rider problem, an absence of transparent records, and similar hikes in food and fuel prices. It was also heightened due to the government’s statements, with the energy minister saying that the “the soaring dollar rate and increase in global petroleum prices have meant that petroleum products are costing Pakistan much more.” This is why electricity rates rose, “since the power was partly being generated from expensive imported fuel.”

What caused the soar?
There are several causes that contributed to the soar in bill prices. The major cause is the circular debt that is rampant in the economy. According to a board member of the State Bank of Pakistan, the underlying cause behind this is that “Independent power producer contracts are dollar-denominated and based on capacity payments, which has resulted in the circular debt problem.” This debt has been furthered due to unreleased subsidies and interest charges on delayed payments, to reach PKR 2.64 trillion rupees as of August 2023. As the government has failed to address this deep rooted issue, according to a report by The News International, 50 per cent of the electricity bill is attributed to “government inefficiencies.”

Another major issue that has become the recipient of public backlash is the supply of free units of electricity to power sector employees. The practice of providing free electricity in Pakistan has resulted in a substantial financial burden on both state-owned entities in the power sector and government departments. A former CEO of a power distribution company Disco emphasized the relative insignificance of the cost of free electricity units for power sector employees alone compared to the enormous capacity payments. Approximately 120,000 employees of state-owned organizations receive electricity based on their pay scales, amounting to PKR 22 billion annually.

Aside from this, like the JI party, many have attributed the crisis to the agreements made by previous governments with the IPPs. This agreement stipulates that regardless of how much electricity was distributed, the government remains obligated to pay them. Owing to ongoing weather conditions which generated low consumer demand, and the exorbitant surging rates, many IPPs shut down and remained idle. Despite this, consumers have been urged by Kakar to pay PKR 1.3 trillion in the form of capacity payments.

What has been the government’s response?
The increase has been “passed on to the consumers.”  Subsequently, Interim Prime Minister Anwaarul Haq Kakar has described the protests to be politically motivated, based on the actions by some parties with reference to the inflated bills. This majorly includes the protests staged by the Jamaat-e-Islami party, whose leader blames the agreements made with Individual Power Producers (IPPs) for the inflated bills.

Having earlier promised relief to power consumer over their bills, Kakar has now termed the situation as a “non- issue,” implying that the concerns of these individuals would not be addressed. He has attributed the surging electricity prices to the stringent conditions of the USD three billion bailout agreement forged with the International Monetary Fund (IMF). As per the agreement, the IMF required the Pakistani government to increase their tax revenue, as a result of which the prices went up by PKR 7.5 per unit. 40 to 50 per cent of electricity bills are linked to taxes imposed by the government, exclusive of a tariff rationalisation surcharge and a financial surcharge. These costs have been translated into increased rates from power distribution companies, leading to mass outcry. The caretaker government has tried to reassure the public by saying that since “markets are psychological,” economic and financial conditions will improve. 

What are the likely fallouts?
Pakistan faces mounting political pressure, particularly regarding the timeline for the upcoming general elections. During inception, the caretaker government vowed to meet the IMF requirements and continue the policies that were being pursued by the previous government. The ‘balancing act between the Constitution and the ECP’ that is currently ongoing has led to concerns about potential delays. This delay is potentially the cause behind the government not having a long term goal in mind. Political experts have stated that even if it wanted to subsidise the bills, it “has nothing” to borrow from. Thus, its hands are tied. Shehbaz Sharif on the economic turmoil over the electricity bills stated, “unless they give a date of election and spell out priorities, things are going to get worse, unfortunately.”

The uncertainty surrounding the elections and the hike in prices have led to instability in the capital market, discouraged investments, and could exacerbate capital flight. Engineering firms particularly lost out on their competitiveness due to challenges in efficiency and achieving goals, creating a shortage. 95 per cent of firms have reportedly had no access to finance, and 78pc companies have also been experiencing operational inefficiency due to power fluctuations. Companies are also undoing severe financial strain, as they are forced to invest in uninterruptible power supply (UPS) systems.  Additionally, the supply chain disruptions have reduced their international competitiveness. The confluence of the crises mentioned above present a significant threat to Pakistan’s economic future.

However, it is important to note that the caretaker government has nothing to lose politically, regardless of how this situation is resolved. Although their tenure is uncertain, there are no implications that this challenge imposes on them. Since it is an ad hoc government, once the general election results are declared, the problem of inflated bills will inevitably become the problem of the next government.

References
Khalid Hasnain, “Free electricity quotas merely tip of iceberg,” Dawn, 04 September 2023;
“JI to move SC against deals with IPPs,” Dawn, 04 September 2023;
Khaleeq Kiana, “Electricity issues cast dim light on engineering sector,” Dawn, 04 September 2023;
Nasir Jamal, “Paying for the free riders of electricity,” Dawn, 04 September 2023;
Maleeha Lodhi, “Power failure,” Dawn, 04 September 2023;
Zafar Bhutta & Rizwan Shehzad, “PM caught between a rock and a hard place,” The Express Tribune, 04 September 2023;
“JI leaders booked for protesting against hike in power prices,” The Express Tribune, 03 September 2023;
Adnan Amir, “Pakistan’s inflated electricity rates spark public uproar,” Nikkei Asia, 04 September 2023;
Zofeen T Ebrahim, “Pakistan in uproar as protests over soaring energy prices turn violent,” Al Jazeera, 05 September 2023

PR Short Note
Pakistan's election timeline: Balancing act between ECP and Constitution
Dhriti Mukherjee

 

Can ECP deliver faster elections while upholding constitutional mandates?
On 1 September, the Election Commission of Pakistan (ECP) demonstrated its determination to expedite the general polls, by stating that it aims to complete the delimitation of constituencies by 30 November. This decision paves the way for potential elections in late January 2024, with 28 January as the most likely date, unless the Supreme Court intervenes. In case of practical difficulties, the election date could be pushed to 4 February.

An ECP official stated regarding the Supreme Court's potential intervention, "We will comply with it [SC order]." However, the ECP is still awaiting the Supreme Court's judgment on its review petition concerning elections in Punjab and Khyber Pakhtunkhwa following the dissolution of the provincial assemblies.

ECP's commitment to expedited elections aligned within constitutional boundaries?
The ECP has repeatedly emphasized its commitment to conducting elections as soon as possible. This commitment aligns with feedback from political parties, with the goal of holding elections following the amended delimitation schedule. The Supreme Court’s recent judgement that rejected the ECP’s review petition holds the potential to result in implications that will be felt in the upcoming polls. Legal experts are of the view that the judgment sets a precedent that could influence the timing of elections as per the Constitution, which mandates them by 8 November.

Doubt over ECP's consistency regarding election timelines?
Recently, there have been concerns that question the reliability of the ECP in meeting the timelines put forth by the constitution. Earlier this year, the ECP refused to hold elections for the Khyber Pakhtunkhwa and Punjab assemblies within the mandatory 90-day period, defying both the Constitution and Supreme Court orders. Initially, the ECP indicated it was ready to hold polls within 60 or 90 days, its stance shifted abruptly regarding fresh delimitations. Due to the constant changes and shifts in stance, a sense of political instability and lack of trust has been brewing among both political actors and the general public. Until it recognizes that no law or court order can exempt it from its constitutional duties, concerns persist that it may find reasons to delay elections, despite its assertions to the contrary.

Striking the right balance between speed and constitutionality
The willingness showcased by the ECP in recent days towards expediting the elections, highlights that it holds a certain sense of urgency. This is further attested to with the Supreme Court’s judgement considered. Nonetheless, there are questions about balancing speed with adherence to constitutional mandates that are raised.

Given the recent (changing) decisions declared by the ECP over the course of the last month, it is vital to restore trust in the ability of the ECP to remain consistent. This is in large part due to the fact that if Pakistan wants to increase the degree of democracy and transparency in its election, a fair and timely electoral system is mandatory. As Pakistan navigates this critical juncture, all stakeholders must work together to ensure that elections are conducted in a manner that upholds both efficiency and constitutional integrity.

References
Iftikhar A Khan, “Delimitation plan altered to hold polls in January: ECP,” Dawn, 02 September 2023; Editorial, “ECP’s mantra,” Dawn, 02 September 2023
 

PR Short Note
The second hike. Now on Petrol, Diesel, Sugar and Pulses
Femy Francis

After the increase in electricity bills, now on Petrol, Diesel, Sugar and Pulses
On 31 August, the Ministry of Finance announced a new price hike of petrol to PKR 14.91 and high-speed diesel to PKR 18.44 per liter, which aggregates to PKR 305.36 per liter for petrol and PKR 311.84 for diesel. The Ministry of Finance attributed the hike to “the increasing trend of Petroleum prices in the international market and the exchange rate variations.”

Additionally, there has been a rise in the price of sugar, pulses and ghee/cooking oil. The current price for sugar stands at PKR 172 per kg with some retailers selling at PKR 185. Furthermore, there has been an average PKR 20 per kg rise in price for pulses as the imports stand costly owing to the depleting values of Pakistani currency. A hike in cooking oil and ghee prices is observed with the jump in palm oil rates.

What does the hike mean?
The shift in the petrol and diesel price will largely affect the transport sector with trains, trucks, buses and tractors which heavily rely on diesel and it would in turn reflect on the cost of vegetable and other foods. Whereas the hike in petrol will directly hit the middle class and lower middle classes as it would become costly to sustain and use private vehicles, rickshaws, and two-wheelers. With the rising cost of pulses and food grains can directly affect the ongoing food crisis with Pakistan already on the 99th position under Global Hunger Index, the current hike might lead to further the exasperating the condition. 

What has been the government response?
On 31 August, Interim Prime Minister Anwaarul Haq Kakar stated that the people would have to pay their electricity/ utility bills as there is no way around it. He blamed the previous governments from 30 years prior for the economic crisis and that they planned to announce a relief package for the consumers. When asked about the IMF conditions he stressed that Pakistan will fulfill all conditions “at any cost” and that they refuse to deviate from it.

Additionally, Kakar explicitly blamed the severity of the issue on the unregulated contracts signed with Independent Power producers (IPPs) in the 90s to increase power production, where now they have to pay the surcharge. He stated that: “Our power structure remained dependent on fossil fuels and imported fuel. Whatever we were doing was on foreign reserves [in dollars] and that is impacting our other governance aspect.”

On the demand to remove the free electricity benefits enjoyed by the government’s legislators, judiciary and executive, Kakar said that it is not entirely true where the Army does not consume a single free unit and that they pay from their budget. With the judiciary as well he claimed, it was not the same as it was portrayed and it was only the Water and Power Development Authority (Wapda) few employees that enjoyed the free units.
 

On 31 August, Pakistan Railways Chairman Mazhar Ali Shah announced that they plan to shift to solar power for field formations, encompassing stations and workshops. The first phase is set to include the transition of major railway stations, nine divisional headquarters and other officers which is aggregated to save PKR 1.8 billion. Additionally, owing to the energy crisis and the protest against the hiked electricity bills the Pakistan Railway’s management has decided to prohibit the usage of air conditioners before 11 am every day by the officers.

What are the social responses? 
On 28 August, protests engulfed Pakistan from days prior against the hike in electricity prices. The protests kickstarted after the National Electricity Power Regulatory Authority announced that they were pushing the tariffs to PKR 4.96 units as a condition demanded by the IMF. Due to this, there has been an unrealistic hike in bills which has led to traders, businessmen and civilians taking to the streets. Several have demanded the removal of taxes from the bills and a petition was filed in the Supreme Court for the same with the removal of free electricity benefits enjoyed by the government elites. Since the protests the interim government has promised to come up with relief measures after it has been consulted with the IMF.

On 28 August, Jamaar-e-Islami (JI) staged a women's protest against electricity prices where they demanded relief from heavy taxation of the bills. Naeemur Rehman of Karachi Ji Emir Hafiz expressed that the current caretaker government is giving the people the cold shoulder due to which the mothers and sisters are compelled to take to the streets. Muttahida Qaumi Movement-Pakistan (MQM-P) stood against the ongoing protests stating that they support the traders and businessmen but they should follow some restraint.

Another editorial in Dawn, ‘Inflation and desperation’ looks into the real impact of soaring inflation, currency depreciation and the hike in prices to be faced by the lower to middle-income groups. The author found that many civilians have resorted to desperation where they are asking for help from strangers, the only difference between them and the vagrant on the street is that, they are full-time workers who are unable to make ends meet owing to exorbitant rise in prices.

References
Khaleeq Kiani, “Fresh hike takes petrol, diesel beyond Rs300 per litre,” Dawn, 1 September 2023; Erum Zaidi & Saif Ur Rehman & Shahid Shah, “Already under fire over rising inflation, govt allows massive hike in petrol, diesel prices,” The News International, 1 September 2023;
Aamir Shafaat Khan, “Consumers punished with more hikes in sugar, pulses rates,” Dawn, 1 September 2023;
Syed Irfan Raza, “Consumers have no option but to pay bills: PM,” Dawn, 1 September 2023;

 

PR Short Note
Nawaz Sharif's anticipated return: From “Will he” to “When”
Dhriti Mukherjee

What do reports say?
On 25 August, Dawn reported that former President Shehbaz Sharif responded to speculation over Nawaz Sharif's impending return to Pakistan. He stated: “We held consultations with the senior leadership of the party and we have decided that our quaid [leader] Mian Muhammad Nawaz Sharif will return to Pakistan in October.” However, the timeline continues to shift as it is being influenced by various factors. Party insiders have put forth the retirement of Chief Justice of Pakistan Umar Ata Bandial, Nawaz's pending appeals, and election dates, as possible developments that are playing a pivotal role in determining his return. The fear of potential incarceration upon returning, due to being declared an absconder and pending appeals, adds to the complexity of this decision.

Although it was initially speculated that he would return in mid September, recent advice from party loyalists has led to a delay until mid-October. A source reportedly told The News International that “the severity of weather” is what has led to discussions focusing on 15 October as a tentative return date.

Political implications of his return
Nawaz Sharif's return is not devoid of political implications. The PML-N leadership has accused Chief Justice Umar Ata Bandial of showing "double standards" regarding the treatment of incarcerated politicians. Shehbaz Sharif openly criticized the Chief Justice for the apparent disparity in concern for Nawaz Sharif's well-being during incarceration. These allegations and statements have widened the discourse surrounding political victimization within Pakistan’s legal system.

Amidst these complex circumstances, Shehbaz Sharif emphasized the party's commitment to "transparent accountability across the board for all institutions." This is in alignment with PML-N’s recent calls for legal proceedings to be conducted in a fair manner, and its intention to facilitate the Election Commission of Pakistan (ECP) in ensuring transparency in the upcoming general elections.

Importance behind his return
Nawaz Sharif’s return will have various advantages for the PML-N politically. While Shehbaz Sharif has proven to be a good administrator, most party members and supporters look at Nawaz as a more pragmatic leader. His connections with the people of the country and other international leaders have led him to be a celebrated political figure, and his return could set a more successful trajectory for the PML-N. Along these lines, his return could present better chances of the PML-N securing votes in provinces other than Punjab. This would mean a spread of their support base and influence, having inevitable advantages for the party as a whole.

References
Atika Rehman, “New date floated for Nawaz’s homecoming,” Dawn, 26 August 2023
“Nawaz Sharif to return to Pakistan in October: Shehbaz,” Dawn, 25 August 2023
Murtaza Ali Shah, “Nawaz Sharif to return in October,” The News International, 26 August 2023

 

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