Call to work out strategy to curb power theft

ISLAMABAD — The Asian Development Bank (ADB) has asked Pakistan to work out an effective strategy to curb electricity theft in state owned power sector entities in Pakistan.

By From A Correspondent

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Published: Thu 3 Nov 2005, 9:39 AM

Last updated: Thu 2 Apr 2015, 5:13 PM

A latest study of the Bank — SME Development in Pakistan — is also of the view that poor infrastructure, particularly in the power sector, increases the cost of growth for firms of all sizes.

"Poor power provision entails high costs, poor quality of service, lack of reliability, and corruption in obtaining supplies. This reflects the failure of state-owned utility providers to deliver," the study said.

The cost of firm growth in Pakistan, it said, is increasing significantly because of the high compliance costs of fiscal and non fiscal regulations. High compliance costs arise because these regulations involve direct contact between officials and firms; grant excessive discretion to officials; tend to entail complex non transparent rules; and give rise to a significant corruption burden.

"The cost of corruption for firms is exacerbated by excessive delays in dispute resolution," the study said adding that high compliance costs are also the result of proliferating regulations and regulatory agencies.

The cascading nature of the tariff structure raises the cost of firm-level growth.

An important new finding of this study is that regulatory costs are heavily biased against SMEs that have entered their expansion phase and this sets a strong incentive for firms to remain small.

Furthermore, the human capital constraint is exacerbated by the lack of investment in training by firms, in particular, by SMEs.

Their inability to appropriate the returns on investment and enforce contracts deters SMEs from investing in managerial and worker training.

Market transaction costs and inefficient contract repudiation is constraining the growth and risk-taking ability of firms in Pakistan. An outcome of high market transaction costs is weak linkages with high-quality intermediate goods and raw material suppliers.

"This is a consequence of poor trust networks and an inefficient judicial system enforcing contracts."

In particular, high market transaction costs and inefficient formal contract enforcement inhibit the development of SME clusters and subcontracting networks, imposing high inventory costs and, perhaps, forcing SMEs into sub optimal diversification.

"This is an important insight, which suggests that designing the right regulatory framework within which to execute and enforce contracts is as important for SME growth as the traditional emphasis on reducing state control and regulation," the study added.

It concludes with a set of broad, strategic recommendations on stimulating the growth of SMEs in Pakistan.

The study provides detailed recommendations concerning SME-specific binding constraints, including financial sector constraints, judicial constraints, and fiscal and regulatory constraints. It also recommends measures to overcome constraints that are generic

across firms size, that is, infrastructure and HR constraints.

"The findings suggest that lowering these constraints would have a significant positive impact on the growth of SMEs in Pakistan," the study added.

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