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Old Wednesday, October 20, 2010
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Default The challenges in implementing power sector reforms

The energy sector has been hit by a number of snags in the past few years. WB and ADB, the two major donors for the sector, have emphasised the urgency to implement power sector reforms to generate sufficient funds for enhancing transmission and distribution capacity and to make functioning of the electricity regulatory authority transparent.

Addressing the prevalent energy crisis and implementing reforms in this sector forms a pivotal part of the government’s agenda. But according to a report by South Asia Regional Initiative (SARI) for Energy, “There seems to be a lack of political will to implement it aggressively.”

The government is giving serious consideration to power sector reforms in view of the decision of the IMF that it would withhold the tranche of $1.7 billion (due to be provided to the country a few months earlier) till the fifth review takes place in November/December, 10. The review is also to include implementation of power sector reforms.

Power sector reforms go back to mid-90s when the sector faced hitches on the back of poor operational and financial performance. It was then emphasised by donors that efficiency in power generation, transmission and distribution could only be achieved with active participation of the private sector. Consequently, a strategic plan of privatisation was prepared with prime focus on “decentralisation, establishing a competitive infrastructure that would make the sector efficient to spur economic growth and reduce fiscal deficits”. National Electric Power Regulatory Authority (Nepra), an autonomous regulatory agency was established in December, 1997 to “ensure transparent and judicious economic regulation in the power sector”. Private Power and Infrastructure Board (PPIB), was established in 1994, to facilitate private investors. Since then a number of public sector power units have been privatised with the financial and technical assistance of WB and ADB.

Water and Power Development Authority’s (Wapda) vertically integrated power wing was split into separate generation, transmission, and distribution companies according to Wapda Act 1998. Wapda was reorganised into four thermal generation companies (Gencos), nine distribution companies (Discos), and one National Transmission and Dispatch Company (NTDC). NTDC would remain under state control and be responsible for national dispatch, transmission and system planning as a ‘single buyer’. The hydroelectric power development and operation functions remain with Wapda. Despite these measures and pouring in of $2.0 billion by WB and ADB for enabling privatisation and introducing structural changes in the sector over past many years, the results have been contrary to expectations. The ADB is of the opinion that Wapda still exercises strong oversight and control over the unbundled corporate entities, heavy financial losses continue to plague Wapda and Karachi Electric Supply Company (KESC) and drain the government budget. Further, Wapda and KESC have also failed to generate sufficient funds for investment in urgently needed transmission and distribution capacity. Financial drain on the public exchequer adds to the soaring fiscal deficit. It is due to these reasons that international aid agencies ask for more reforms to make the sector competitive.

As the very first step, Pakistan Electric Power Company (Private) Limited (Pepco), a separate entity within Wapda responsible for restructuring and privatisation for generation and distribution companies is being abolished. This can take roughly nine months after the notification is issued on 31st October, 2010.

Privatisation of KESC did not result in anything fruitful and its affairs are no better than they were prior to privatisation. It is being contemplated that the privatisation model for generation and distribution companies of Wapda should be changed to management contracts, leasing and equity injection through initial public offerings to avoid private monopolies. Its success will depend upon multi-factors and is likely to take greater time than one can contemplate.

Another point of contention is the issue of power tariff hike and withdrawal of subsidies, which is being addressed since the past two years to make the sector financially self-sustaining. These two matters also form the major conditionalities of the current SBA programme.

Donors have repeatedly insisted that subsidies to the energy sector should be withdrawn because they create distortions in financial management. The government is going through the process and it has made electricity quite costly for commercial consumers, particularly those associated with export businesses. They condemn the measure on the basis that the rise in tariffs increases the overall cost of production and therefore, exporters’ products become less cost effective in comparison with products of regional competitors, who enjoy supply of electricity at cheaper rates.

Similarly, the dilemma of circular debt has reached its pinnacle. Circular debt has been accumulating due to non-payment of electricity bills. This is why the focus is on improving the functioning of distribution companies. Implementation of power sector reforms is imperative to rectify distortions faced by the sector and fiscal imbalances and power outages faced by the economy and people. The government should demonstrate strong political will to implement the reforms. Their implementation should not create unnecessary hardships for common consumers or cripple the country’s export potential due to high power tariffs. In order to reduce dependence on expensive fuels, furnace oil and natural gas, emphasis should be laid on generating comparatively cheaper hydroelectricity by expediting construction of Basha and Munda dams. Priority should also be given to curb line losses, theft and improve functions of the distribution companies. All deals in the sector should be made transparent to establish credibility of the political regime and its ability to deliver the results.
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Old Wednesday, October 20, 2010
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Default Lesson not learnt

The floods, the politico-judicial crisis and an economy more and more resembling a rollercoaster. These have been the main themes of our misfortunes this summer. In terms of their relative gravity, it is a hard pick. Any one of these could be dangerous enough to rock the government. Combined, the three can rock the state and society as well. The leadership should be scrambling to find solutions and save the people, in whose name they govern, from a great convulsion. But that does not seem to be the case.
Those in government like to believe that they should buy time and things may just work out. In any case, they send daily SOS signals to the international community to bail us out. They think that the US and its allies will not let a nuclear-armed country of 170 million threatened by Islamic militants, or go under.
People wonder if Pakistan’s political class follows any norms, or if it just follows the basic instinct to survive, bending the rules and regulations to cater to the growing pyramid of needs of its members. Another of their failings is the lack of a will to learn from the past. The country’s largest parties refuse to draw lessons from their own negative experiences.
The media, particularly television’s anchormen and the growing number of anchorwomen, are ever so eager to speculate about the government’s imminent fall. By fast-forwarding Musharraf’s downfall, they have tasted blood. Nothing will now satisfy them other than seeing governments’ downfalls.
But in all fairness to the media, the rulers themselves provide grist to the mills of political forecasters. Unfortunately for them, the press does not particularly like those governments which stay in office after their “best-before” date has passed in popular perception.
The result of the media’s ongoing “offensive” against President Zardari is that he has “dug in,” projecting himself as a potential martyr.
Our present government is under intense pressure, but it seems in no mood to try turning things around by seriously addressing the issues which have made it unpopular. Of the multiple challenges today, the state of our economy is the most worrying.
If we are to believe the media reports, Mr Zardari has said “no” to setting an example by trimming the size of “his” cabinet. If the Presidency, the Prime Minister’s House and the cabinet do not cut their expenses, how do they expect the legislature and civil administration down the line to tighten their belts?
Two years of democratic profligacy should be enough to start course correction now. Like justice should be seen to be done, elected rulers must prove their capacity to govern, not only before elections but everyday of their rule. It does not help to shy away from tackling price hikes, reject expert advice and take shelter by accusing the technocrats for having ambitions to rule the country.
Prime Minister Gilani may be justified in advising the technocrats to contest elections if they want to rule the country but what should we make of India’s second-longest-serving prime minister who has yet to be elected to the Lok Sabha, the lower house of the Indian parliament.
Manmohan Singh’s party leader has no hesitation to keep him in office as a member of the upper house. It is not clear how keen our technocrats are to be in the hot seat but they do expect the rulers to draw some lines while resisting technical advice in matters of taxation and revenue collection. Time is running out fast for controlling financial haemorrhage in the name of democracy.

Last edited by Silent.Volcano; Wednesday, October 20, 2010 at 03:44 PM.
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what strategic dialogue?

Intensive discussions and high-level meetings are taking place in preparation for the forthcoming meeting of the Strategic Dialogue in Washington scheduled to begin on Friday. It will be the third round of the dialogue. The last was held in Islamabad in July.
The idea of the Strategic Dialogue is to promote the “strategic partnership” outlined in 2006 during President Bush’s Islamabad visit. It started off on a high note. The joint statement issued by Presidents Musharraf and Bush underscored the determination of the two leaders “to strengthen the foundation for a strong, stable and enduring relationship.” The statement identified a large spectrum of issues related to bilateral ties, ranging from economic ties, trade and investment, to a “robust defence relationship that advances shared security goals”.
The Strategic Dialogue was to be chaired by top officials of the Pakistani foreign ministry and the US State Department, the foreign secretary in Pakistan’s case, but was raised to ministerial level in October 2009 during Hillary Clinton’s visit to Pakistan. The Pakistani foreign minister and the US secretary of state were “to meet regularly to review issues of mutual interest” and to “undertake steps in areas of economic growth and prosperity, energy, peace and security, social-sector development, science and technology, democracy and non-proliferation”. Despite these lofty goals and the ambitious agenda, there has hardly been any movement towards the fulfilment of any of these objectives.
To ensure a significant expansion of bilateral ties, including mutual trade and investment, a “key step” was conclusion of a Bilateral Investment Treaty. Negotiations have since continued but the BIT has yet to see the light of day.
Decisions were taken “to explore ways to meet Pakistan’s growing energy needs and strengthen its energy security” and develop public-private collaboration. Considering Pakistan’s severe energy crisis, nothing correspondingly serious or urgent has been done, except for a pledge of $125 million announced by Secretary Clinton in 2009.
The amount is meant to be utilised to upgrade the thermal power stations at Guddu, Jamshoro and Muzaffargarh. The progress, if any, is only on paper. Meanwhile, the US has openly opposed Pakistan’s agreement with Iran for a gas-pipeline project to meet its critical energy requirements.
Pakistan’s request for a civilian nuclear deal similar to the one the US has signed with India has been rejected, in view of Pakistan’s “track record” in the nuclear field. There is little hope of any softening in the US attitude over this point.
Foreign Minister Qureshi is reported to have raised this issue before his interlocutors during his recent visit to Washington, and though he claimed that “the talks were very satisfactory” the facts do not corroborate his statement. A senior US official bluntly stated that such a deal “is not on the table, and the Pakistani views are well-understood and we listen carefully to them.”
To put Pakistan on the defensive, the US authorities have renewed the demand for access to Dr A Q Khan and expressed opposition to China’s building the Chashma nuclear reactor.
During his Senate confirmation hearings last month, US ambassador-designate to Pakistan Cameron Munter declared: “I intend to raise the question again of our repeated requests to have our people be able to interview Khan.” Questioning Ambassador Munter during the hearing, Senator Richard Lugar also expressed his concerns over Pakistan’s control on its nuclear inventory. The State Department has also opposed Sino-Pakistani nuclear cooperation, in particular China’s plan to build two reactors, holding it a violation of the Nuclear Supply Group (NSG) regime, ignoring the fact that US companies have similar agreements to sell reactors to India.
The three major dimensions of our relations – trade and investment, energy and defence – have failed to register any major development during the last four years. Hence, to accredit this dialogue process with any tangible significance would be too optimistic.
There are a host of other issues, such as US violations of Pakistan’s air space, the increasingly deadly drone attacks, delayed payments of the Competitiveness Support Fund (CSF), supply of defence equipment and strategic issues which are not in the public domain will form the staple of the discussions in the fourth round.
What has the so-called Strategic Dialogue or Strategic Partnership delivered for Pakistan? One may also ask what happened to the 56-pages dossier that the Pakistani delegation submitted to the US in the previous round.
The US policy regarding the Strategic Dialogue has been in conformity with its own national objectives, and that element in itself cannot be faulted. But we need to outline our national agenda and draw the red line, even if belatedly. Washington needs to be told that the partnership cannot work without the United States meeting reciprocal obligations and that both sides must work only within the agreed parameters.
Our leadership should not take at face value President Obama’s assurances that the US is “seeking long-term engagement and will remain a strong supporter of Pakistan’s security and prosperity long after the guns have fallen silent.” Once the US makes a safe and (honourable?) exit from Kabul, Pakistan will merely receive the attention deserving of a “world’s 5th most unstable country”, in the words of the State Department’s Global Peace Index (GPI) report released in June
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