It is the sad story of toothless regulators and remorseless rent seekers

Sep 01 - 07 , 2003 

Pakistan seems to be enjoying best of its economic times but the overall consensus is that the general public is not benefiting from economic prosperity. Some analysts say that the collaboration among players within various sectors and undue patronage by the government do not allow the benefits to trickle down to masses. The sole beneficiary of economic bonanza is a small group of business community. Owing to the prevailing situation companies are showing higher profit, which is not sustainable in the normal environment. They also warn that if the government takes corrective measures these exceptional profits will vanish. This may also lead to massive erosion in corporate earnings and the much talked about dividend yields may turn into huge losses.

It may be absolutely ridiculous to say that the private sector is solely responsible for the situation. The real culprits are the regulatory authorities and the decision-makers in the capital. It seems that either the regulators are toothless or the rent seekers are looking after the interest of decision-makers very well. Arshad Arif of KASB Securities, in one of his recent reports, has identified Ministry of Industries and Monopoly Control Authority the two major culprits. His conclusion was based on the analysis auto, cement and steel industries. However, these are not the only culprits. One can draw a long list of other culprits.

Probably Ministry of Industries has exhibited the poorest performers among all the ministries in the present regime. It has failed in resolving problems faced by sugar industry, the driving engine of rural economy. Despite all the hue and cry from the consumers and the media, the state of affairs in the auto industry is very much similar to where it was 6 months before. The price reduction by the assemblers was merely eyewash. The officials have also changed their earlier stance on allowing import of re-conditioned cars. In fact the ministry is beating about the bush by issuing various statements while its unwillingness to act against the malpractice by the trade is very much evident.

Monopoly Control Authority (MCA) seems to be the weakest authority among the regulators in the country. The authority takes refuge behind lack of resources, but does it need hundreds of people to take action against any one, be it the cement cartel? The poor performance can only be attributed to lack of interest and inability to act against ill practices of manufacturers enjoying the power to maneuver prices individually or collectively. Despite the reduction in the CED cement price has not come down correspondingly. Cement manufacturers raised the prices just before announcement of budget and reduced it by the CED reduction on the very next day. The price is around the same level and MCA has not been able to assert itself as yet.

The elected government has also rendered National Electric Power Authority (NEPRA) an impotent entity. Increase/decrease in electricity tariff are being announced without going through the formal process for determination of revised tariff. The recent announcement regarding increase in tariff for distribution companies in Punjab completely negated the earlier announcement that the government wanted to bring down electricity tariff in the country.

Private Power and Infrastructure Board has been given the mandate to recommend the measures for bring down the tariff. It is important to point out that the Board published advertisements in newspapers soliciting comments from all the stakeholders but gave only seven days time to submit suggestions.


The current threatening environments may have been sustainable in the scenario when Pakistan was without adequate foreign exchange reserves. At this juncture, one of the solutions is to allow import of second-hand cars and cement to reduce prices in the local market. This may help in bring down the prices of these commodities. Saying this, it is also important to note that both the sectors suffer from poor capacity utilization and allowing import can render these sectors incapable of delivering whatever they have been delivering so far.

However, the key problem is higher cost of production at state owned cement units, as they are still using furnace oil. Besides, all the plants have not been converted to coal firing system as yet. Higher profit margin is the right of those who took the initiative of conversion to coal. However, these manufacturers should share the advantage of lower interest rates and reduction in government levies with the general public.

It is worth noting that while the government is asking the urea, cement, automobile to reduce price, it is not willing to reduce levies charged on these commodities. The worst example is POL products. Nearly 70% of retail prices of POL products comprise of taxes. The same is also true about electricity. WAPDA and KESC have virtually become tax collection agencies.