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ECONOMIC REVIEW
Subsidies Yielding No Benefit To Common Man by SHABBIR H. KAZMI
Rising leakages and thefts are affecting profitability of gas distribution companies

Huge subsidies are paid annually. During the ongoing financial year the government planned to spend Rs190 billion but actual amounts paid during the year may be much above the allocation made. Sectors consuming bulk of the subsidies include electricity, food, POL, fertiliser and state-owned enterprises. Subsidies Yielding No Benefit To Common ManAdded to this is the burden of Benazir Income Support Program that had increased the number of people living on stipend. Had this money been spent according to an elaborate program for alleviating poverty, it would have been better.
PPP often says that its good work is not recognised and the critics malign it for faults it has not committed. However, if one digs a little deeper it becomes obvious that many of its decisions are aimed at benefiting groups having vested interests. The only problem is that the opposition neither has the brain nor the spine to highlight wrong-doings. It (opposition) talks most about those issues which do not pertain to or affect the lives of common man. It has never objected to payment of subsidies which is a waste of billions of rupees of tax payers' money because it also wants to pursue its own agenda i.e. sasti roti, cab scheme and distribution of laptops. This wastage of money weakens Pakistan's financial health and ultimately forces it to compromise on its sovereignty.
Subsidy payment on electricity is said to be due to rise in global oil prices but real spoilers are massive theft and poor recoveries resulting in inadequate cash flow. This results in ballooning of circular debt. Reportedly PPP-led coalition government has given Rs1.4 trillion subsidies on power, fertiliser and food in its four-year rule. In the first year, the government gave Rs120 billion in power subsidies, in second year Rs180 billion, in third year Rs335 billion and in fourth year Rs487 billion, totaling to Rs 1,122 billion. Despite such huge payments, electricity crisis has aggravated and the government has completely failed in resolving the issue.
Experts are of the consensus that power sector is the most mismanaged sector because of not following good governance. It suffers because of massive corruption, rampant theft of electricity and mounting receivables. The subsidy paid to power sector does not serve its basic purpose. According to the experts the beneficiary of this subsidy should have been 'subsistence level consumers' using up to 100 units but in the absence of any plan all types of consumers are benefiting. Therefore, it is waste of resource and there is an urgent need to come up with a revised but prudent plan so that the smaller consumers can get some relief.
While proving that ultimately consumers have benefited from power sector subsidy may require elaborate analysis, the amount paid as subsidy on fertiliser is enough to prove that sanity does not prevail in Islamabad. The country has the capacity to produce minimum one million tons exportable surplus urea but decision makers forced the country to import around 1.22 million tons. This happened because of curtailing gas supply of fertiliser plants and diverting it to power plants.
Pakistan could have earned minimum US$500 million by exporting surplus urea but ended up spending US$610 million on its import and paying Rs44 billion subsidy in just one year. Cumulatively, the Subsidies Yielding No Benefit To Common Mangovernment had paid Rs110 billion subsidy on fertiliser in four years.
These numbers can be authenticated from urea imported by the Trading Corporation of Pakistan (TCP). According to the details once the last stuck up consignment arrives, the total arrival will reach 1.22 million tons. It is worth noting that total quantity, except supply of some 200,000 tons of urea from the Saudi Arabia Basic Industry Corporation (Sabic) was on cash. A $100 million credit facility was extended by the Saudi Fund for Development.
Subsidy paid on fertiliser is complete waste of resources. It is suspected that the policy is only to reward groups having vested interests. In the past huge quantity of locally produced as well as imported urea was smuggled to neighbouring countries, but the local farmers were fleeced by ruthless dealers having access to power corridors, who bought imported urea and then sold it to farmers at inflated prices.
Saying that curtailing gas supply of fertiliser plants was a bad decision is proved because curtailment of gas resulted in reduced production of urea. The foreign exchange earned from export of urea could have been used on importing furnace oil and Rs44 billion paid as subsidy on imported urea could have been given to power plants as cost differential between cost of gas and cost of furnace oil.
Apparently the government does not pay any subsidy on wheat or any other staple food, except on the products being sold through Utility Stores i.e. sugar, wheat flour, edible oil. There is growing suspicion that it is a source of corruption rather than a way to ease burden of consumers. As such the number of consumers catered through Utility Stores is too small. Buyers normally buy a few products and often purchase of other goods is made mandatory. It is feared that bulk of sugar, edible oil and even wheat flour and rice is purchased by those who ultimately sell it to end consumers.
It is evident that every year huge quantities of wheat and sugar are smuggled to neighboring countries. It is estimated that about half a million tons wheat is smuggled to neighbouring countries annually. This deprives the country from earning foreign exchange and adds to imports if the commodity has to be imported.
This year almost half a million tons sugar was smuggled. That alone could have enabled country to earn minimum US$300 million. This happened because of delay in granting permission to export sugar. The quantity allowed was just 100,000 tons and traders must have found it easier to make a quick buck.
Many economic analysts say that one of the reasons for higher oil import bill is hike in international price of crude oil. However, the economic managers fail in making any prudent decision. Pakistan could have curtailed oil import bill by availing Iranian offer to supply 80,000 barrel crude oil daily and also by completing Iran-Pakistan gas pipeline for which Iran is willing to provide US$250 million to take care of foreign exchange component of pipeline.


 
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